Are These High-Flying Tech Stocks Worth Your Money?
Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Several growth stocks within the technology sector have richly rewarded their investors in recent months. Stocks including Amazon.com (NASDAQ: AMZN), Expedia, (NASDAQ: EXPE), and Zynga (NASDAQ: ZNGA) have rallied considerably since the beginning of the year.
At the same time, each of these stock recently released quarterly earnings that left a lot to be desired. Do post-earnings declines represent buying opportunities for Fools? Or should investors get out altogether?
Amazon shares have steadily climbed since the beginning of 2013, rising 21% up until its second quarter earnings release.
From a revenue perspective, investors were right to be optimistic. Amazon racked up $15.7 billion in net sales over the past three months, which represents 22% growth year over year.
Unfortunately, the company was again unable to turn a profit. Amazon lost $7 million during the quarter, equating to a penny per diluted share.
And, Amazon told investors not to expect a profit in the current quarter. Management guidance is for a net operating loss in the third quarter as well.
Expedia, meanwhile, was a $45 stock one year ago today. Shares then rose to $65 up to the day of its earnings announcement. That means the stock racked up impressive 44% gains over the past 52 weeks.
However, Expedia's shares collapsed upon releasing earnings, which showed the company missed analyst expectations on both revenue and earnings. The company posted $0.64 per share on profits of $1.21 billion. Estimates called for $0.79 in EPS and $1.26 billion in revenue.
Overall, revenue grew 16% from the year-ago period, but higher costs drove profits down 16% year over year. The market reacted extremely negatively to the report; Expedia shares lost as much as a quarter of their value in after-hours trading.
Zynga’s stock price increased nearly 50% since the start of the year, including a nearly 7% rally on the day before its evening earnings announcement. Unfortunately, the optimism was quickly erased when the stock sold off into the double-digits in after-hours trading.
All told, Zynga’s second-quarter revenue fell 31% versus the same period a year ago, and bookings collapsed 38% year over year. Not surprisingly, the company posted a net loss, of $16 million.
Zynga raised controversy when it announced, along with its quarterly results, that it would not further explore online gambling. Many optimistic analysts had pinned their hopes on this concept. Shares plunged 12% immediately after the earnings results, and it’s not hard to see why: Zynga is rapidly shrinking.
Over the past 52 weeks, Zynga has hemorrhaged users. One year ago, the company held 72 million users. As of this quarter, that figure is down to 39 million, which represents a 45% drop-off in Zynga’s customer base.
At some point, the future needs to become the present
The buy case for Amazon has been for years, and continues to be, that at some point down the road, the company will flip its margins and become massively profitable. This is the mantra that gets repeated quarter after quarter, when Amazon reports little to no profitability.
But at this point, it may be helpful to remember that this has been happening for years now. Amazon’s most profitable year between 2002 and 2012 was 2010, which represents the only year during that decade in which Amazon turned a net profit greater than $1 billion.
Meanwhile, sales have exploded—from $3.9 billion in 2002 to $61 billion in 2012. And yet, even in 2012, a banner year, Amazon lost $39 million.
If Amazon were a company by any other name, is it reasonable to ask if the stock would be at $30 per share, and not $300 per share?
I’m concerned that the market is giving far more credit than is due. This is a stock that continues to lose money and has not demonstrated at any point in recent history that it can stay consistently profitable.
In all, these three companies are wildly popular, provide excellent services, and truly revolutionized their respective industries. That being said, on a stand-alone basis none of them is truly appropriate for investment at the valuation multiples they currently hold.
More on Amazon
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Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!