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Deflecting fears about losses is Amazon's Teflon

7/27/12 2:35 PM ET (MarketWatch)

SAN FRANCISCO (MarketWatch) -- In business, people like to say you have to spend money to make money. Few companies embrace that philosophy more than Amazon.Com Inc.

The e-commerce giant is so well versed in the practice that even when it spends so much that it makes little or no money at all, it can get investors to believe the company knows what it's doing. Those investors sent Amazon's stock up 7.5% on Friday to $236.60, and put the shares within shouting distance of an all-time high of $246.70, which the shares reached last October.

Colin Gillis, who covers Amazon for BGC Partners, called Amazon the "Teflon stock," noting its share gains while saying "the company makes less than one penny in operating profit from every dollar of sales." Read more about Amazon's quarterly earnings report and outlook.

But in a way, we've all gotten used to it. Take Amazon's second-quarter results as Exhibit A.

The company reported revenue of $12.8 billion, up 29% from a year ago. But its total operating expenses of $12.7 billion nearly exceeded its quarterly revenue, and were up 31% from last year's second quarter. Partly due to expense increases, Amazon's operating profit, one of the key measures of its health, fell by almost half to $107 million.

What did Amazon do for Exhibit B? Chief Financial Officer Tom Szkutak only said that spending would go up -- only without the corresponding earnings that come from the old "spend money to make money" adage. Szkutak didn't give any specific expense forecasts, but indicated that Amazon expects to have a third-quarter operating loss of between $50 million and $350 million.

With Amazon already having built six new distribution centers, with 12 more in the works -- which analysts estimating each one costing up to $50 million -- it's not a stretch to see what Amazon's doing with its dollars.

"We continue to have concerns not necessarily about how much Amazon is spending," said Kerry Rice, of Needham & Co., "but how much people expect them to spend. But as they continue to invest heavily in infrastructure, they still find the ability to deliver and meet expectations."

It's no secret why Amazon gets the benefit of the doubt. Demand for e-commerce continues to grow; Amazon's product selection is probably the best available online; and features such as same-day delivery make it easy and attractive to order everything from books and clothes to gardening equipment in one shopping cart and have it sent promptly to your door.

Because of such factors, according to Rice, "investors have become indifferent to Amazon's high levels of spending."

Contrast how the market digested Amazon's spending and operating outlook with that of Facebook Inc. (FB) . Indifference was not the reaction that the social-networking firm got following its first earnings report as a public company. Read more about Wall Street's reaction to Facebook's report.

While Facebook reported adjusted results in line with estimates, it had an operating loss and Chief Financial Officer David Ebersman said expenses would "increase significantly," as the company embarks on a Silicon Valley strategy of hiring lots of "top talent." Like Google Inc. (GOOG) , Facebook also didn't give an earnings or revenue forecast for its third quarter.

The market didn't like that combination of increased spending with no estimates to gauge Facebook's performance, and sent the company's stock down as much as 14%, to a new low of $22.28. Since Facebook's IPO in May, its shares have fallen more than 41%.

You might have to spend money to make money, but sometimes you lose money too. Amazon is getting a pass in that regard. Facebook may be huge, but it hasn't coated itself with Amazon's level of Teflon, yet.