eBay Inc (EBAY), Amazon.com, Inc. (AMZN): Do Profits Even Matter?

Last week Amazon.com, Inc. (NASDAQ:AMZN) announced its quarterly earnings, and the results were less than impressive. The company failed to beat estimates both in the top and bottom lines, reported a loss, and yet investors still continued to buy the company. It looks as if Amazon.com, Inc. (NASDAQ:AMZN) investors don’t really care about profits, and that the fundamentals don’t really matter for the company.

Last quarter’s results

Let’s review last quarter’s results first. In the quarter, Amazon.com, Inc. (NASDAQ:AMZN) was able to increase its sales to $15.7 billion, up 22% from the same quarter a year ago. The bad news is that the company’s expenses grew at an even faster rate, pushing it into the loss territory. The analysts were expecting Amazon to post a profit of $28 million whereas it reported a net loss of $7 million. The company’s management mentioned that it was spending a lot of money on new media content and warehouses.

Every quarter the company claims that it will post profits sometime in the future but says now is the time to invest heavily in growth. Amazon has been acting like a start-up company even though it’s been nearly 20 years since its foundation. The company’s revenue guidance for this quarter was also below the analyst expectations. The analysts were looking for revenue of $17 billion whereas the company guided between $15 billion and $17.2 billion, a midpoint of which falls to $16.1 billion. Despite missing on profits and margins in both the top and bottom lines, giving lower guidance, and having no idea when profits are coming, Amazon.com, Inc. (NASDAQ:AMZN)’s share price continued its rally after the earnings report.

The trend doesn’t look good

Here are a couple charts I found at Zerohedge.com regarding Amazon’s “growth story” in the last few years. The first chart shows how the company’s net income has been in free-fall mode since 2010 and things don’t look like they will improve anytime soon. It looks like the company’s management started to realize how little investors care about Amazon’s profitability, so they decided to let go of profits altogether. If any other company had a chart like this, its share price would be plunging day after day; however, this is not the case with Amazon, which outperforms the market consistently because people will continue to buy Amazon.com, Inc. (NASDAQ:AMZN) shares no matter what.

The next chart demonstrates us how Amazon’s operating margins are razor thin. The margins were never strong to begin with, but they are only getting worse. At this rate, we don’t even know if Amazon will ever be able to post a profit.

There are better alternatives

I like eBay Inc (NASDAQ:EBAY) a lot better than Amazon as an investment. eBay Inc (NASDAQ:EBAY) is highly profitable mostly thanks to its subsidiary Paypal. The company also has higher margins than Amazon.com, Inc. (NASDAQ:AMZN) because it collects commissions on sales rather than building warehouses and selling people merchandise directly.