Why Amazon's Stock Is Soaring After a Terrible Earnings Report

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Amazon's earnings were filled with all sorts of misses, including a 45 percent decline in profits, and yet the stock is up around 8 percent in after-hours trading because of one good metric: operating income. While the e-commerce giant reported revenues of $21.27 billion, short of the expected $22.2 billion, its operating income — a common metric for the health of a company — was up to $405 million, from $207 million a year ago, which apparently outweighs all the other bad news as far as investors are concerned.

In addition, as Zero Hedge's Tyler Durden points out in a series of illuminating charts, Amazon also announced shrinking worldwide net sales growth and net sales income. Amid all this lost money, the site also hired a ton more people to fill all those new warehouses. Still, despite all of these traditional signs of failure, investors haven't lost faith, which might not quite make sense, since the stock market punished Apple for a seemingly healthier report last week. That's because, as Durden notes, Amazon has somehow sold itself on growth over profits: "After all the thesis is that the more AMZN loses, the more of its competitors will supposedly go out of business, and greater AMZN's pricing power eventually," Durden writes. Or, in kinder words, the market believes in Amazon's potential, as one analyst told The New York Times's David Streitfeld.  "[Wall Street] is betting a lot on what Amazon hasn’t done yet and betting on the fact that it will do it based on what it’s doing now. Kind of a 'build it and they will come’ sort of thing," Jason Moser of the Motley Fool said. For example, Amazon has invested in a lot of warehouses to win the same-day shipping war, which could potentially kill grocery store style shopping. Operative word: potentially. 

This article is from the archive of our partner The Wire.