The Fools on the Street

Remember the early days when Amazon wasn’t profitable, but was going to be any quarter now? This week, Amazon announced that its quarterly profits would be down by a third because they were investing in infrastructure to continue to grow into a larger company — and Wall Street was disappointed at the way the profits “tumbled.” They were still profitable by a large margin. They just weren’t AS PROFITABLE, because they spent money to make more money down the road. They’re bringing in close to $10 billion per quarter — $10,000,000,000 — with profits in the hundreds of millions. (Nope, not a great profit margin, but here’s the classic case of making up slim margins in volume.)

And, of course, Wall Street hates it because Amazon didn’t “meet expectations.” In other words, the numbers that analysts plucked out of thin air and guess at weren’t right. And that’s Amazon’s fault.

Compare this to Apple, where every quarter Apple sets low expectations and then blows them away and gets a big stock boost. Everyone knows Apple is underguessing its numbers to help “meet expectations.” And everyone also knows that the armchair amateur revenue guessers on-line are always better at figuring out sales figures and dollar amounts than the “pro” analysts who are aid to guess these numbers. And they never get them right, or close to it.

I hate Wall Street. On the other hand, their game is so consistent(ly wrong) that it’s a good game to play, so long as you realize it’s a game and not anything based in reality at all.