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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 233.05+2.9%Jan 5 3:59 PM EST
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To: larry oertel who wrote (37004)1/26/1999 10:29:00 PM
From: David MacLachlan   of 164684
 
Let's keep these earnings per share (EPS) numbers in line with what is their intended application. EPS is used as a guide to measure how many years worth of earnings that you are implicitly paying for when you acquire a stock, ie, how many years you would wait to recover your investment from the stake in the company if all earnings flowed into your pocket. Each share represents a call on the earnings and therefore each new share is relevant in considering the amount of earnings that are notionally available to that shareholder.

EPS is much less relevant in a deficit corporation. For example, if a profitable corporation issues more shares its EPS will drop unless earnings are increased from the employment of the new capital raised in the related share issuance (at least notionally). But in a deficit corporation the EPS can be made to look better merely by issuing more shares (the denominator in the fraction).

Note that Amazon has issued 15,000,000 shares since the last comparable quarter. In addition, the overall level of losses has increased from 10.8 million to 22.180 (before charges). This means that the new capital has not increased earnings, it has been used to finance additional losses. Also, if no new shares had been issued the "EPS" would have been (16) cents per share rather that the (14) contained in the press release.

By doubling the number of shares outstanding the "EPS" would "fall" to (8) cents a share. Obviously this does not mean that the company is in better shape.
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