On Friday, after the company announced first-quarter results late Thursday, Amazon stock fell 9.9%, to $303.83 a share, down nearly 25% from its 52-week high of $408.06 in January and its lowest level since last October. (Forbes added some eyebrow-raising perspective on the Friday drop, noting that it cut the value of CEO Jeff Bezos's stake in the company by nearly $2.8 billion.)
While Amazon's quarterly results matched analysts' revenue and earnings estimates, investors are concerned because Amazon predicted that in the second quarter, earnings will be somewhere between an operating loss of $455 million and profit of $55 million, while revenues should grow between 15% and 26%.
The New York Times's James B. Stewart commented: "When it comes to suspending disbelief about a lack of profits--the only thing that ultimately matters when it comes to stock valuation--Amazon.com has been in a class of its own. Its price-to-earnings ratio, a common measure of stock valuation, has at various times topped 3,000 (the market average is about 18)--and that's when it actually has had a profit.
"Investors never seemed to care. 'Over the long history of the last eight years, this stock went from $60 to $400, which made all the doubters look stupid while all the believers got rich,' said Bruce Greenwald, a professor and head of the value investing program at Columbia Business School. 'The fact that Amazon did this in the face of deteriorating operating performance--slower growth in sales and the evaporation in profit margins--has made fools of the people who looked at the reality of its operations.'
"That may be changing."
Still, Stewart pointed to an unusual loyalty among many investors and analysts to Amazon, many of whom continue to praise the company. But not all: Eric J. Sheridan, an Internet analyst at UBS Securities, in February downgraded Amazon to neutral from buy. "Amazon is the third rail of investing," he told Stewart. "I had hundreds of angry people calling me for days. How dare I say anything negative about Amazon?"
He continued: "With Amazon you've had a cult investor group that believed that all that matters is revenue growth. The problem is, in the last year and a half, the growth rate has started to slow quickly. It was 40% two years ago and now it's close to 20%."
For its part, the Wall Street Journal said, "The Amazon story is simple: Get as big as possible, then one day stop investing heavily and become tremendously profitable. But it has been told so often now it is taking on the whiff of legend.... After seeming like it might be within reach, Amazon's fabled margin expansion remains elusive; it clocked a net margin of all of 0.55% in the quarter. Things looks set to stay this way for a while."
Besides its ongoing major investments in warehouses and its cloud service, Amazon is spending billions investing in China, videogames and TV shows and may launch a delivery service a la UPS or a smartphone.
The Journal concluded: "For the investor blessed with a long time horizon, little has changed about Amazon's story. For everyone else, it is starting to read increasingly like Waiting for Godot."
In an interview with the Guardian, Christopher North, the head of Amazon's U.K. operations, defended the company's European corporate structure and U.K. tax payments, saying, "We pay all of the taxes we're required to pay in every jurisdiction around the world, including the U.K…. I don't think following the law gives the company an unfair advantage."
Amazon's European headquarters is in Luxembourg, which has a lower tax rate than most other E.U. countries, and Amazon funnels its U.K. business through it. As a result, the company had sales of £4.3 billion (about US$7.2 billion) in the U.K. in 2013 but paid U.K. taxes of just £3.15 million ($5.3 million) in 2012.
"I would defy anybody to find a way to have 120 million products available to U.K. customers if they only did that from a single U.K. team, sourcing products from the U.K., with only warehouses in the U.K.," North said. "We just couldn't do that. And a single European business is going to need a single European headquarters."
An unnamed Amazon spokesperson chimed in--with phrasing only possible at Amazon: "Making country-by-country comparisons is difficult. We're very pleased with our continued growth in the U.K. and worldwide, and know that it will only come if we continue to find ways to delight customers."