Amazon's Spending Surge Arrives at the Perfect Time
E-commerce and cloud leader Amazon.com (NASDAQ: AMZN) reported its third-quarter results on Thursday, Oct. 24. While the initial after-hours reaction was a severe 7% sell-off, Amazon's stock did bounce back the next day to just a 1.1% decline. Still, this was well behind the overall market, which had a largely positive day.
Why all the pessimism? Aside from the company's perhaps less-than-stellar guidance for the fourth quarter, Amazon's spending has gone through the roof, sending earnings per share down 26% from the prior-year quarter to $4.23, and missing analysts' estimates by $0.32 -- despite the company's impressive 23.7% top-line growth. The spending spree is kicking in big time for both Amazon's core e-commerce business, where the company continues to invest heavily in one-day shipping, as well as for Amazon Web Services (AWS), where margins compressed heavily year over year.
My interpretation is that AWS' slight revenue deceleration and big margin compression were the main culprits for the sell-off. But if investors step back and look at how Amazon is investing in AWS, you'll see a company that's playing the long game, and playing it brilliantly -- in fact, much better than competitors.
Source Fool.com
