Comments on: Wall Street stumped, surprised by Internet Cos

By: Kevin Kelleher

Kevin Kelleher — Mon, 30 Apr 2007 20:01:49 +0000

Om, Thanks for jumping in.

Mark, I try not to make a habit of responding to anonymous, petulant comments but I'll make an exception because of the discussion it generated.

Of course, there is more to an analyst's job than an EPS forecast (including the kind of under-the-table footrubbing that got many of them into trouble several years back.) But downplaying the importance of their ability to forecast earnings is like saying a pitcher's ERA doesn't tell the story. It may not tell the whole story, but everyone focuses on it anyway.

ref, my post was about EPS numbers and not absolute profits. And I didn't bring up valuation, although you do raise some good points. AMZN is up on a squeeze, certainly, and its stock overvalued. Yet it is evolving back into a cutting-edge tech company, and we're only starting to see that in its numbers. I wouldn't underestimate it.

One point I should have made earlier: I singled out Piper Jaffray because of the unlucky timing of their downgrade, which was a little unfair because they should get points for making a gutsy call. They are usually prescient in their Internet coverage.

By: ref

ref — Mon, 30 Apr 2007 13:04:36 +0000

Forgive me but this post is both ignorant and misleading. To suggest, for example, that there is any justification for AMZN current price based on the % surprise ignores even the most basic knowledge of valuation metrics. Yes, AMZN profit was twice expectations- $115 million vs 70 million. But this is on $3 billion in sales. Its PE is >120. For comparison, GOOG earned over $1 billion on similar rev. GOOGs earnings “surprise” was greater than AMZN entire net. GOOG revenue increased by more than 30% but unlike AMZN, they have double digit margins and a PE under 50. There is little question that GOOG revenue will increase next quarter (as it always has). AMZN rev will fall (as it always has because of the seasonality of their business). Don’t get me wrong. I like AMAZON as a company…it is a well run internet retailer. I buy stuff from them all the time. But as a business they have no significant competitive advantage (unlike Ebay, GOOG or MSFT) – their margins are thin, they are facing growing competition in their space. To growth into their PE would take an astronomical increase in revenue and market share. The analysts have AMZN right. A good business but overvalued. Any rational person would sell into this short squeeze driven run up.

By: Om Malik

Om Malik — Mon, 30 Apr 2007 06:05:45 +0000

Jay, actually the post is by Kevin so perhaps it should be addressed to him.

Mark,

I am sorry - but I don't make estimates and I don't post them on my blog. That is part of the analyst gig. While I understand it is tough to be spot on, the variance data in this quarter is just too glaring.

Having said that, if you don't think estimates and numbers are part of an analyst's job, why include them in the research reports.

That would mean no debate on whether the estimates were met or not.

By: Jay (living in First Life)

Jay (living in First Life) — Mon, 30 Apr 2007 05:56:34 +0000

Om - Mark has a bit of a point and it is difficult to predict BUT

Mark - Analysts tend to be more accurate in other industries and rarely do companies with such large market caps consistently beat expectations.

What this can mean is:

a) Standard inustry analyses are not well suited to companies with low marginal cost (then again, that would imply that they do poorly with pharma stocks where the analysts are pretty accurate)

b) The analysts covering the tech industry have not done a good job of adjusting to growth in these companies' earnings and may need to re-do their models.

By: Big V

Big V — Mon, 30 Apr 2007 05:08:56 +0000

Well. Mark – what exactly are they paid for? What’s more important on the Wall Street than predicting the value of a company you cover? How else does one make money on your Wall street? Fraud? Commissions?

By: Arun

Arun — Mon, 30 Apr 2007 03:56:57 +0000

Mark, just wondering, what those other “more valuable” things are. Pray throw some light.

By: mark

mark — Mon, 30 Apr 2007 00:02:01 +0000

if you think analysts are only valued for and paid for their ability to accurately predict earnings estimates on a quarterly basis you have little idea of how wall st works today. another point i’d make is…why dont you try estimating earnings, post your predictions on your blog, and then we’ll track how well you do compared to the analysts. but like i said, it still wouldnt matter too much if you topped them because their valued and paid for many other, frankly more valuable, things.

By: Shirish

Shirish — Sun, 29 Apr 2007 20:13:46 +0000

In my experience Fundamental Analysts are never good at predicting big changes in earnings. They are good when things are steady, so whats the use?

I am just worried that based on these results I hope we don't start seeing the inflationary forecasts from analysts like the previous bubble.

Great article. thanks

By: chris

chris — Sun, 29 Apr 2007 16:02:24 +0000

Its only just begun. Productivity increases will continue to drive profits up as engineers replace accountants.

By: Alaskan Carnivore

Alaskan Carnivore — Sun, 29 Apr 2007 14:50:09 +0000

I have two words to say about this post.. Elastic Cloud.. heh..

By: petabro

petabro — Sun, 29 Apr 2007 14:12:03 +0000

start a tab – gigafin

By: shadilac

shadilac — Sun, 29 Apr 2007 12:49:47 +0000

Very interesting article, it’s rare to find good financial analysis of tech companies from people who know what they’re talking about.

By: raghu ram prasad

raghu ram prasad — Sun, 29 Apr 2007 12:44:16 +0000

Internet companies are playing a game with the people.. not assuring jobsalaries and many problems .thanks for giving such beautiful information. visit my blog also

By: Lawrence

Lawrence — Sun, 29 Apr 2007 12:32:59 +0000

lol – so much for that. goes to show, that’s all analyst are – analyst.

if anyone is going to make an educated decision about what stocks to buy – it’ll be me…atleast i won’t be kicking myself as hard if i lost money on my own, as opposed to letting someone else do it – and losing it.