Amazon has two basic options: invest in long-term growth to eventually conquer the world or cut costs and turn a profit to benefit investors.
CEO Jeff Bezos continues to make it clear the company is going with the first choice.
[seealso slug=http://sale-online.click/2014/07/22/amazon-fire-phone-review/%5D%3C/p%3E%3Cp%3EThis year, Amazon spent $19.4 billion from April through June to generate $19.3 billion, resulting in a not a entirely unexpected loss. Analysts had predicted the company would not turn a profit in the quarter. The only surprise was how much of a loss -- more than had been anticipated.
It proved too much for investors. The stock moved steadily lower after the earnings release and the earnings call, during which Amazon executives made no attempt to convince investors that it is about to change its ways.
The shares are now more the 20% lower since the start of 2014. The Nasdaq Composite index of technology stocks has gone up 6.4% in that time.
The issue is pretty clear: Amazon is spending an incredible amount of money on a variety of investments that are not turning a profit. Well, not yet.
This reality has led to reactions like these:
Is Amazon spending like a drunken sailor? http://t.co/QBw0ZYCDpS
— MarketWatch (@MarketWatch) July 24, 2014
Jeff Bezos on Amazon net income: 2000: Later 2002: Later 2004: Later 2006: Later 2008: Later 2010: Later 2012: Later 2014: Later
— Kontra (@counternotions) July 25, 2014
The Fire phone, Fire TV, drone delivery, Amazon Fresh -- all these projects require capital investments that do not immediately pay off. In fact, some never will.
Amazon knows this.
"We're not trying to optimize for short-term profit," Amazon's CFO said during Thursday's earnings call.
It might be hard to believe that Amazon is, by some analysts' projections, still a young company. Companies often run at a loss during times of growth in which investment is encouraged to maximize future revenue and profits. Here, Baird Analyst Colin Sebastian compares Amazon to Walmart, which was founded in 1962, but didn't take off for a few decades.
.@firstadopter @BenedictEvans @HedgeNY Why would AMZN harvest earnings now? So early in the growth curve (see chart) pic.twitter.com/PDP3a0BnRp
— Colin Sebastian (@Colin_Sebastian) July 25, 2014
That might mean good things for the company in the long term, but struggles for share price in the short term.
"The array of strategic initiatives at Amazon is impressive and we believe that the investment decision is the right one for the long term. However, we remain on the sidelines as the game of "tug of war" (between revenues and operating income/investments) with [Amazon] shares remains in play," UBS analyst Eric Sheridan wrote in a note on Thursday.
For many companies, persistent losses and a plummeting share price might spell doom for the CEO. Amazon, of course, is not a normal company. Bezos still controls a massive chunk of the company -- roughly 18.5% -- meaning that he still has a firm grip.
Shareholders could conceivably attempt to unite but it would prove difficult. The largest institutional shareholder is Capital World Investors, which holds about 6.9% of Amazon's stock, according to Morningstar Research.