Investors: Don't Sweat Amazon's Unpredictable Earnings

Amazon (NASDAQ: AMZN) stock sold off after its second quarter results, likely because earnings per share of $0.40 missed expectations by a whopping 72%. Not only that, but Amazon guided for operating income of negative $400 million to $376 million next quarter, versus consensus estimates of positive $950 million. So why should investors should be excited for a company missing profit estimates by over a billion dollars? Because Amazon is not just any company.

Amazon typically spends all excess profits and operating cash flows on growth initiatives, never giving investors profits. The company benefits by a) not having to pay much in taxes, and b) out-spending and out-experimenting the competition. Jeff Bezos has said the company invests with a longer time horizon than most -- five to seven years out -- so much of the current spending could be considered growth investments. 

Of course, earnings misses would be worrisome if revenue missed as well, but Amazon reported an impressive 25% sales growth to $38 billion, beating estimates by $820 million. That growth rate is impressive for such a large company, but there's still plenty of runway because of the company's forward thinking investments. 

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Source: Fool.com