Login to your account

Lost your password?

Why did Amazon pop after missing earnings estimates?

Being in the heart of earnings season, every day we see more companies take turn try to impress analysts. Tuesday saw Amazon.com (AMZN) take the stage. Judging by the stock's 5.5% jump Wednesday, you would assume that the company had blowout earnings… but you would be wrong.

Inexperienced traders often operate under the assumption stocks rise on better-than-expected earnings, and sell after earnings misses, but this is not always the case. Take for example Apple (AAPL) which easily outpaced its quarterly earnings estimate last week, but saw its stock fall by 10% the following day.

Look at the numbers:

Going into last night's earnings report, analysts had forecast earnings of $0.28 per share. Actual results came in under expectations at $0.21. Going into Apple's earnings last week analysts forecast $13.47 per share, and the company posted actual earnings of $13.87.

Amazon soared after its earnings miss, and Apple sold off sharply on its earnings beat. We are not going to get into Apple's earnings, but the real question is: why is Amazon trading so strongly today despite its earnings miss?

The simple answer is forward expectations. Amazon is the undisputed market leader in one of the biggest and fastest growing industries… e-commerce. Online shopping has been growing at a tremendous rate, and Amazon is more often than not the first site people visit when searching for a product. You can buy just about anything on Amazon's site, and typically at a price lower than you can find anywhere else.

The company has been investing heavily in the future, and yes this is having an impact on current earnings, but it would be incorrect to not see how its recent investments will pay out big down the road.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.