Amazon's Earnings Don't Tell Us Anything
The $126 million loss Amazon.com Inc. reported for the second quarter of 2014 is no big deal: With more than $80 billion in annual revenue, the company can easily turn that around. What's irritating is how little it is telling its shareholders about the performance of the investments into which it is putting their money.
Studying Amazon's financial results is frustrating. Its breaks out just three segments: "electronics & other general merchandise," "media" and "other." For a company involved in a multitude of businesses ranging from mobile device production to cloud computing, that is woefully inadequate.
Microsoft Corp., Sony Corp. and Apple Inc. -- all Amazon competitors in various fields -- publish detailed segment information, which makes it easy to understand how various parts of the companies are doing. It doesn't take a team of private investigators to find out that Microsoft's mobile handset unit, formerly part of Nokia, is unprofitable -- it's right there in the latest earnings release, under "phone hardware." There's no need for a forensics expert to discover that iPad sales are slipping: Apple reports its results by product category, making it crystal clear where it's winning and where it has problems. Sony's segmented reporting has activist investors telling it what to do, but it also shows the company is facing up to its business challenges and has nothing to hide.
Perhaps this helps explain why Sony stock is down only 2 percent this year despite its losses, while Amazon's is down 10 percent. If you're telling the market, as Amazon does, that you're making massive investments in order not to pass up business opportunities that competitors might grab, it would be helpful to explain how much you're betting on the various opportunities and whether you're good at making these bets pay. As it is, on the second-quarter earnings call, Chief Financial Officer Thomas Szkutak kept dodging questions about how the company's investments are faring.
The number of subscribers to the $99-a-year Prime program? It's "growing very nicely." Video content? "We've seen just more and more customers are streaming" it. The cloud-computing business, buried in the "other" category? "The team is doing a fantastic job and innovating on behalf of customers." The Fire phone, notable for its innovative 3-D effect but panned by reviewers? "In terms of the phone, there's not a lot I can help you on that. We're extremely pleased to get it in customers' hands." Not even an established product such as the Kindle is broken out in the report.
Granted, Amazon's businesses might be hard to separate because of the way they reinforce one another: E-books are easier to use across devices because of the company's cloud capacity, and anyone with an Amazon phone is constantly getting guidance on what to buy and where. That said, Apple's products are often complementary, too -- it's easy to buy music and movies from the iTunes Store if you own an Apple TV -- and that doesn't prevent the company from making an effort to be transparent.
Amazon is, in effect, an enormous black box. Investors who buy into it have to trust the management on issues such as cost control and decisions on entering this or that market. Amazon founder and Chief Executive Officer Jeff Bezos is a visionary who has proved his ability to reinvent entire industries, but Amazon is simply too big for any one person to control completely. Bezos himself probably has access to more detailed numbers, and he must enjoy the flexibility that comes from opaque reporting, but he only owns 18 percent of the company. Other shareholders deserve to know more.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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