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Commentary on The Capital Markets- Category [Earnings]

From the Journal... Inc. ’s soaring ambitions are coming at a steep cost, dragging the e-commerce giant to its largest quarterly loss in 14 years.

A surge in spending on new-product development, music and video licensing, and other parts of the Seattle company’s expansion strategy led to a net loss of $437 million in the third quarter, worse than its year-earlier loss of $41 million. The wider loss came despite a 20% jump in revenue to $20.58 billion.

Ambitions eh?

Well, that's very nice.  I'm sure you're aware that it's pretty trivial to spend like a drunken sailor on ambitions -- in his case on that pretty gal in the bar.  Of course that doesn't mean you're going to score on those ambitions, you know.....

I've been amazed for years that the market has given Bezos a pass on actually earning anything at all on these ambitions.  Profits will come, we're told, but the obvious question is "when??"

It has appeared for a couple of years now that the answer was always destined to be never, and that the only way Amazon could possibly maintain its alleged "growth" was to basically give away product, R&D and fulfillment at below the cost of production.  

That shouldn't surprise at all; it's usually very easy to be "successful", measured by the number of units of "X" you deliver, if you don't care if you make any money doing it!

If Amazon can't actually turn a profit while operating then I argue the stock is worthless.

If they can -- why don't they?

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Financial engineering is not a positive-sum or even zero-sum game -- it is a negative sum game.  It must be due to the simple fact that nobody works for free, as I've repeatedly pointed out.

IBM got monkey-hammered this morning on their earnings release; they've been one of the financial engineering "kings" over the last few years, and missed -- badly.  They no longer believe their EPS goals are achievable, citing weak sales.

Uh, yeah.  Weak sales eh?  How's that good?

The fact is that it's not just spending and revenue.  It's also the leverage amplification that IBM (and others) have used to "goose" results over the last few years, leveraging extremely low borrowing costs and abusing stock buybacks.

The chickens are beginning to come home to roost on these practices.  Do not be deceived into believing this is a "one-off" or "one company story."  It most-certainly is not.

The entire market has been lofted by this nonsense; now, into the maw of what should be a cyclical exhaustion point we're going to get the backside of these practices, and IMHO it's going to sting, with little that can be done to dampen it.

The financial forecast appears to me to be cloudy with a chance of random portfolio butt****ing.

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Vindication comes to the patient...

HBO's streaming announcement didn't help, and neither did weak guidance and decelerating growth.

When you're priced at 134x earnings absolutely nothing can go wrong or you get destroyed.

In this case if you were long the stock you just saw 26% of your money evaporate within 30 minutes.


PS: Just wait until the other dominoes come down on this one...... Raise your glass to stupidity America, bidding up stocks to 134x earnings is, well, stupid -- and when you get reamed doing it just remember who's fault it is that you got so greedy as to not sell out before this point -- YOURS.

Oh, by the way, what's Amazon's P/E?

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