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A silver lining in the clouds over Amazon?

Posted by: Rob Hof on February 03, 2005

Investors sure whomped Feb. 3, the day after it missed fourth-quarter profit expectations. But they may have overlooked an intriguing sign of better things to come. …

What most investors missed was a $244 million tax benefit that implies much more than a nice onetime boost. I won't bore you with the details of how Amazon came up with that number, which has to do with accounting arcana called net operating loss carryforwards. But according to Caris & Co.'s David Garrity, the upshot is this: The tax benefit is an indication that Amazon's management sees considerably better profits, as much as $700 million pretax, in the next five years or so. By Garrity's calculations, that translates a market value of about $7 a share--a little more than the amount the stock dropped post-earnings. "This is a signal that the company's underlying profitability will be higher--by a large margin," he told me.

This kind of benefit--as an estimate, it's both long-term and far from certain--may not comfort investors. They just want to know whether to buy in the next quarter or two. But it certainly indicates Amazon sees more opportunity than bearish investors.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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