Tag Archives: Amazon earnings

Amazon’s Shock And Awe Earnings

Yesterday ahead of earnings, AMZN’s stock dropped $60, with $30 of that drop occurring in the last hour of trading.   It’s almost as if market-makers, with their customary preview of the impending AMZN headline EPS report in hand,  intentionally took the price down to set-up a short-trap.  AMZN stock closed at $1390, down $60 from Wednesday’s close.

Shortly thereafter, AMZN’s earnings headline showed $3.85/share, more than double the consensus estimate produced by Wall Street’s Einstein Center For Earnings Forecasts.  $1.85 was the expectation.  AMZN’s stock shot up to as high as $1480 in after hours, up as much as $90 from the close.  Imagine how much money the Big Bank trading desks made assuming they bought all the shares that were sold short in the last hour of trading on Thursday.

Within the first eight minutes of today’s open, AMZN stock shot up to as high as $1495, up $105 from Thursday’s close.  As I write this, AMZN is trading below Wednesday’s close of $1450:

A round-trip to nowhere, essentially. Here’s the funny thing about AMZN’s earnings that Wall Street’s finest will never report, if they even know the truth. Embedded in AMZN’s net income is a $789 million non-cash “provisional” tax benefit for the estimated impact of the new tax law. Note that this is a somewhat arbitrarily determined number – which is why its labelled “provisional” – and it’s non-cash. This GAAP, non-cash tax “benefit,” as guesstimated by AMZN’s accountants, added $1.63 per share to AMZN’s headline EPS report.

Regardless of how you want to account for this, at face value AMZN’s stock is trading at 233x trailing earnings.  Not including the GAAP, non-cash tax benefit, AMZN stock is trading at 315x trailing earnings.

This is not the only problem with the quality of AMZN’s earnings.  I’ve dissected AMZN’s entire  financials for my Short Seller’s Journal subscribers, as reported, showing the areas in which AMZN has exploited the current highly liberalized GAAP accounting standards to generate the  appearance of financial performance that is not real.

Despite Jeff Bezos’ claim that AMZN generated $8.4 billion LTM “free cash flow,” this misleading metric was down 20% from the end of Q4 2016.  But that’s on display in the earnings slides that AMZN publishes every quarter.  On a true GAAP basis, AMZN generated an LTM cash flow deficit – i.e. negative $1.46 billion.

This is just a small portion of AMZN’s accounting abortion.  Unfortunately, until the capital markets are no longer willing to finance AMZN’s cash burning Rube Goldberg operational structure, the stock is very difficult to short.  There will come a time, however, when sand gets blown into Jeff Bezos’ elaborate gears of deception.  When this occurs, the rush for the exits by shareholder will be epic.

Amazon: The Devil Is In The Details

Jeff Bezos/Amazon is the poster-child for the degree to which this entire economic and political system is profoundly corrupt. – Investment Research Dynamics

Amazon stock made a big after-hours “shock and awe” move after it reported a huge headline “beat” of its Q3 earnings.  It’s a funny thing how the “beat the Street” game works.  Ninety days ago the consensus estimate for Q3 was $1.09, with one estimate as high as $1.59. The estimates were systematically “walked down” over the last 3 months to a mean estimate of 2 cents and a high-end estimate of 26 cents. This is how the game is played.

Make no mistake, the Company knowingly “guides” analysts down in order to engineer a “headline” surprise. This is how absurd this game has become. The “beat the numbers” game is one of the many frauds connected with corporate earnings reports. That said, AMZN’s EPS in Q3 2017 were the same as Q3 2016 – zero EPS growth. Bear in mind that GAAP acquisition accounting manipulation is heavily at play here.  Acquisition accounting enables a company to boost revenues and hide expenses.

Here’s just a cursory look at the “Devil in the details” (Short Seller Journal subscribers will get the in-depth, eye-opening analysis in the next issue released Sunday afternoon).

Amazon’s headline revenue “growth” cost AMZN a lot money in terms of operating earnings.  Despite the “marquee” 34% sales “growth” rate, AMZN’s operating income plunged nearly 40% year/year for Q3.  This drop in operating income has accelerated, as YTD for the first 9 months of 2017, AMZN’s operating income has dropped 32%.

This should have been the quarter that AMZN literally “printed” GAAP income because the quarter included its highly touted “Prime Day” record sales.  Furthermore, AMZN should have been able to reap the benefits of merger/acquisition accounting from its Whole Foods acquisition.  M&A GAAP standards enable companies literally to manufacturer GAAP accounting profits.   I would suggest that Bezos’ price-cut strategy at Whole Foods has driven WFM’s operating margin toward zero (from 4% pre-acquisition) – like the rest of Bezos’ consumer sales businesses.  But there’s more…

AMZN’s GAAP net income showed no growth – literally in Q3.  In 2016 AMZN reported $252 million in net income for Q3.  In 2017 it reported $256 million.  EPS were flat at 53 cents (basic).  Zero growth.  For this, AMZN’s market cap after hours increased by $37 billion.  But there’s more…

Without going into the monotony of GAAP tax rate accounting, suffice it to say that anyone who has taken a basic accounting course knows that the GAAP tax rate is highly arbitrary and a major source of EPS manipulation.  Again, the Devil is in the details…

In Q3 2016, AMZN used a 47% GAAP tax rate.  This latest quarter, AMZN capriciously applied an 18% GAAP tax rate.  Had AMZN maintained the same GAAP tax rate used last year, its net income in Q3 2017 would have declined to $200 million, or 41 cents/share. For this, the last buyer after hours ($1,047) was willing to pay 266x trailing twelve month earnings.

This is just the beginning of an in-depth look at the rotting condition of the numbers buried in AMZN’s financial statements.  The next issue of the Short Seller’s Journal will pull back the curtain on areas of AMZN’s SEC-filed numbers where no Wall Street analyst or financial media cheerleader would ever dare venture.  AMZN’s cash flow is declining – and its true free cash flow – not the Bezos non-GAAP “free cash flow” – is negative.  I can prove it.

The highly-touted acquisition of Whole Foods could turn out to be Jeff Bezos’ “Wings of Icarus.”  He may have flown too close to the sun on this one.

The information I present in the Short Seller’s Journal is actionable.  The last two times AMZN’s stock shot up I put a short recommendation on AMZN’s stock (including put option ideas) which led to profitable short-covering opportunities.  In the last issue I advised waiting until after Q3 earnings, stating that a big gap-up in after-hours would lead to another opportunity to short the stock.  You can find out more about the Short Seller’s Journal here:  Subscriber Information link.