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Amazon’s Last-Ditch Attempt to Crush Netflix

Earlier this year, Amazon’s (AMZN) Prime Instant Video service was able to bypass Hulu and iTunes to become the third-most popular streaming service.

And it’s currently gunning for the top two contenders in the space – YouTube and Netflix (NFLX).

On Veterans Day, the company announced the programming lineup for its 2015 pilot season.

The news drove shares up 2.3% on Tuesday, while the rest of the market remained relatively flat.

Before joining the crowd, however, let’s take a closer look at the company’s fundamentals…

Going Nowhere Fast

Shares of the Seattle-based mega-cap retailer are down more than 21.7% year to date – and more than 23.5% since reaching a 52-week high of $408.06 on January 22, 2014.

But since reaching a 52-week low of $284 on October 24, 2014, shares of Amazon have rebounded by more than 9.8%, leading many investors and analysts to believe Amazon stock will continue rising from here.

I’m not one of them…

Whether or not Amazon will be able to overtake Netflix in the video streaming space remains to be seen (although it’s a long shot).

What I can say with confidence is that Amazon stock isn’t worthy of your consideration right now.

Just take a quick glance at the company’s financial reports to see why…

Based on change in net income from the same quarter last year, Amazon has significantly underperformed the S&P 500, as well as its peers in the internet retail industry.

The quarter-ending statement from September 30, 2014 indicates that Amazon’s net income decreased from -$41 million in Q3 2013 to -$437 million.

That’s an astonishing decline of nearly 966%!

On a per-share basis, this translated to a net loss of $0.95 per diluted share, compared to a net loss of $0.09 per diluted share in the third quarter of 2013.

But wait – it gets worse…

Amazon’s operating income also experienced dizzying declines.

The company reported an operating loss of $544 million in Q3 2014. That’s a decrease of $519 million from the company’s Q3 2013 operating loss of $25 million.

Now, if you expect the company’s fourth-quarter guidance to be any type of reprieve, keep dreaming!

Amazon expects its operating income to fall somewhere between -$570 million and $430 million – quite a wide berth.

But when compared to operating income from last year’s fourth quarter ($510 million), even the high end of this year’s guidance portends a 15.6% decline.

Worse yet, losses are sure to blast higher when the actual operating number comes in closer to the low end of guidance.

All of this is bad enough…

But here’s the No. 1 reason to avoid this stock: After spending hundreds of millions of dollars in capital expenditures for internet retailing infrastructure – and despite a decade or more of promises to monetize Amazon’s massive customer base – the company is still nowhere near profitability.

Bottom line: Amazon is the perfect example of how not to run a profitable company. Don’t get caught up in the hype.

Good investing,

Richard Robinson

Richard Robinson

, Ph.D., Equities Analyst

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