The Worlds Largest ontime rate online retailer, known for operating on razor thin margin, saw more than double what was expected. The news is wearing on investors and the stock is down 10 in premarket trading. I want to bring in the head of north american research. Also joining us is jason, an analyst at oppenheimer. Why do investors seem to care now . Weve known they want to operate at a loss . This is the Second Quarter in a row where the stock has reacted negatively to quarterly earnings. Theirors on the margin patience is wearing thin with the investment at all costs and topline growth at all costs, at the expense of profit. It is an issue that management is starting to think about. They are starting to play hardball with some of their suppliers, for example on the media side, with hachette. They want tothat, they dont want to raise prices. The ceo cfo made no bones about it. They will continue their investment in the company. They feel extremely bullish longterm about the story of ecommerce globally. Wordsi look behind the and numbers, it seems like the Cloud Computing business is where amazon is starting to feel some pain. Does that reset expectations for that part of the business . It is now going to take several quarters to run through the numbers. If you had a business that was previously growing roughly around 60 , it is now going to grow just 30 with partial cuts on the quarter here and we are probably talking about that segment growing in the 20s for a few quarters before it really accelerates before it reaccelerates. Its entirely possible they could win more share with these price cuts, but that being said, this is their highest margin business line. I would point out that it does look like they are trying to raise margins, whether it is for prime price increase, the full price phone, the full price fire tv, but all of these initiatives take time. Outperformdo have an rating on the stock. What do you feel most optimistic about . It is still clear they are gaining share. One of the metrics we like to look at is if you break down the ecommerce business and look at the Gross Profit Per customer, that is still growing in the 10 range. If you think about what is overall retail spending growing, 2 , 1 , depending on the geography, they are still growing at 10x of what the overall environment is growing. They are still gaining share. The reality is they are not making much money when they do it. When you look at the company, which is effectively two companies, web service and ecommerce, and if you put a 7times multiple on it, right now, in the markets putting 25 times on the ecommerce business, assuming they could hypothetically get back to a 6 margin am a we think that is a very reasonable that is very reasonable to pay for that type of growth. Thats assuming they can get back to that kind of margin. It seems like the expectation was jeff bezos would stop spending and work on margins. It seems like the worry is he is not going to do that at all and keep investing in different businesses, like drones, for example. Giveven that they dont annual guidance, it does make the profit picture look as worse as possible. I understand investor concerns. If you look at the longterm, they are still gaining share. Are you investing for the short term or the long term . We were looking at the operating loss that amazon is looking at this quarter and it could be as high as 810 million. What about alibaba . Thehen alibaba comes into market, when they start the roadshow, they will step back and say, let me compare the margin of amazon, ebay, alibaba. I think that will shine a harsher light on the amazon story and may put pressure on management to step back. I suspect investors will put some pressure on management to take a look at the profitability in that business. Management believes in the longterm growth story of ecommerce. We think it is only 6 or 7 of retail sales today. Could it be 10 or 12 five years down the road . I think they think the answer is yes. It could make sense to invest longterm today. At what point does the lack of profit that we see no longer justify 150 billion market cap . If you got to a point where this company is growing sales at less than 20 , i think at that point, probably investor frustration at this point, you should be generating profit. The reality is that the company could show whatever margin they wanted overnight. Seen this massive transition from physical media to digital media. They are probably not holding their share within digital media. Part of it has to do with making it easy for consumers to purchase digital goods. I think there are a number of factors at play. They are trying to figure them out for the longterm. Right now, it is not driving the business as much as it had been 12 months or 24 months ago. The amazon fire phone goes on sale today. Are you buying one . Im probably going to take a pass on that one. I tend to not buy the first of a new model of device. Amazon believers, but maybe not so much in the phone. Thank you so much. We are going to move overseas to ukraine. Military positions are under bombardment and the u. S. Is pointing the blame at russia him a the first time the u. S. Has accused the country of a direct attack. I am joined by bloomberg newss Ryan Chilcote in london. Will the accusations move the needle at all . Changet going to president putins behavior . You have to assume if they are firing into the russian part of ukraine, someone might see that. Just because the ukraine is showing it is not going to change his behavior. When it comes to europeans, who i think are the real target for these images, these statements from the u. S. , things might be a little different. They started moving closer to the u. S. And pushing for more sanctions. There is a process, though. This is a way for the u. S. To nudge them along. The u. S. Wants to isolate russia but minimize impact on its own businesses. In order to do that, it needs the europeans on board. It will appease u. S. Business interests who are concerned that if the u. S. Goes it alone, then russia will retaliate against american businesses. This makes the Playing Field a little bit more even. Waso that point, he publishing the u. S. Publishing its latest blacklist today. Will it fall short in terms of what the u. S. Wants in sanctions . Will fallink it short. It is a small list, mostly spies and the heads of the Security Organization and some insurgents. We knew that going into this. There will be a second list that comes out next week called the cronies list, the friends and it,ly list as some refer to and it is designed to get at putins inner circle, not just the decisionmakers interrupting the situation in ukraine itself, but those that support president putin and his rule. That is something that is going to be very interesting. I bet that is something that u. S. Blacklist. Of this on a backdrop of the Ukrainian Government essentially collapsing yesterday after the Prime Minister resigned. Could you argue that was putin possible . Putins goal . I think Ukrainian Government may have wanted that a little bit it self. This had me scratching my head yesterday. There are two things that happened. The Ruling Coalition collapsed. That may have been by design. What a lot of people in ukraine want, including the ruling elite, is to have early parliamentary elections. And the only way according to the constitution to do that is to not have a Ruling Coalition. They parted so that they could come back. Get rid of some of the parliamentarians left from the old regime that supported the ousted president. Thats how that works. ,he more worrisome part here they will have an election and the date will probably be october 26. The ukrainian Prime Minister did not have to step down. Everybody is wondering if there is a risk inside of the government risk inside of the if there is a rift inside of the government camp. Us fromchilcote joining london, thank you so much. We want to continue with the news in ukraine. The Prime Minister has resigned. The u. S. Is accusing russia of shelling military targets. Thats go to the director of the Europe Program at the center for strategic and international studies, based in washington. These accusations from the u. S. That russia is firing artillery across the border and are going to move more weapons over to ukraine, do you believe that . We have to take the information on face value. We certainly know that increased russian transfer is a very sophisticated weapons weapon and arms have been flowing across the ukrainian border. Prorussian separatists are losing very important face on the ground in donetsk and luhansk. President putin doesnt need an outright victory by the prorussian separatists, but he does need a stalemate. Right now, the separatists are on their. Theyre back heel on their back heel. He will have to respond with escalated sanctions. Why does putin just want a stalemate . It would seem what he wanted was a complete destabilization mtf so the country cant really destabilization in kiev so the country cant really function. As weve seen in moldova and georgia and elsewhere, you basically have a russiancontrolled enclave which allows the russians to destabilize and influence the government. So, he doesnt need outright control. But, in order to maintain influence over the government, to prevent them from other ever taking meaningful steps toward the west, he has to be able to have very Strong Influence over the region. The problem is the separatists really are losing militarily. Essay 11s and these very sophisticated aircraft antiaircraft missiles entered into theater as they try to lessen the severity of the military push back against their positions in ukraine. What would be the best deterrent . Weve heard so much about sanctions. You kind of feel like putin is calling europes bluff at this point. Putin has a very high threshold of economic pain. This is existential to his regime. He cannot create this Greater Eurasia Union concept without ukraine. If ukraine goes decisively towards the west or towards europe, that is an excess essential challenge to his regime. The stakes are enormously high. He is prepared to take that economic pain. Europe is the key here. The u. S. Does not have a very strong trade relationship with russia. We do have tools in our toolkit. Slowly, the administration is focusing on the financial and energy sector. Europe is the key. They could begin to change the calculus if they put very meaningful sanctions forward. Unfortunately, they have not. They are extremely slow to do this. It is going to have an enormous impact on their economies. Also, they are concerned they are going to provoke pruden and make the situation worse. The white house will be very frustrated with europe for the foreseeable future. And they all have to agree. With 28 member countries, it is going to be difficult. Thank you very much. Coming up, congress cannot agree on immigration policy, but the president is going straight are going to meet with leaders of Central American countries at the white house today. Look behinds a burger kings 33yearold ceo. President obama meets with the leaders of honduras, guatemala, and el salvador today. Congress has not acted on the president s request for 3. 7 billion to help stem the immigration crisis. Phil mattingly joins me now. Ood morning, phil what does president obama think to accomplish in these meetings . To convey apoint is message, that it is incumbent on these leaders to explain to their people that there is simply no way to establish some type of residency in the United States. White house believes and Administration Officials have told us that these leaders are extremely important to what is akin to a pr push, to inform people in their countries that taking the word of these smugglers and taking a very dangerous trek through mexico is not only worth it an extremely dangerous, but it will eventually result in deportation. To administration will try hammer it home with the leaders facetoface. One proposal has been allowing hundreds to enter the u. S. Is it a realistic proposal . It is realistic but early stage. There have been multiple cabinet officials working on a working group to put forward Different Things that the president could do to try and quell the flow of onse undocumented migrants his own, without congress. One of those is this emergency refugee proposal. Right now is this would apply primarily to honduras. The individuals would be interviewed in country. The administration hopes that people would stop to stop trying to float to the border and instead meet with officials in country. If the program is proven effective, it would be extended to both water mullah both water mullah both guatemala and el salvador. Obverse will be going on a five week vacation. What will they do . They have six make six days left before that break. They are nowhere near a agreement. They are on different tracks. At the crux of it is that 2008 law. Republicans and the Obama Administration want to change the law to allow them to speed up deportations of these Central American undocumented children. Democrats have moved away from that change en masse. There is a chance that they will leave with no solution whatsoever. It is hard to describe as anything but messy. Thank you so much, White House Correspondent phil mattingly. Earnings season is off to a strong start. What does that tell us about the state of the economy . One of those Companies Reporting strong earnings we will have details right after the break. Stay in the loop. You are watching in the loop. Im alix steel, in for betty liu. The flight reporter from an air flight that crashed has been recovered. That is according to french president francois hollande. Mali is fighting a stock on the world bank of scotland is nearing a threeyear high after reports that profits nearly doubled in the first half of the year. Largestritains stateowned lender. Company is buying a company of ireland and plans to cut its u. S. Taxes by moving its base there. The hour. Inutes past Bloomberg Television is on the markets. Futures are taking a bit of a breather. S p futures are down about three points. Another record close for the s p yesterday. The nasdaq is heavily weighted to the downside. Negative Earnings Report from amazon. Premarket shares are down as much as 10 . We will be on the markets again in 30 minutes. Fullngs season is in swing. Many companies surprising to the upside, pushing markets to record highs. What does this say about the state of the u. S. Economy . Are we spending more and buying more . Is that theells us firstquarter gdp numbers that got everyone so upset were nothing to worry about. Going forward, we should be expecting things like more bank lending, increasing loans, etc. , which will also help boost the economy. Its one of the reasons why our equity strategist is so upbeat on financials Going Forward. I dont want to be debbie downer. Weve been hearing about a big pickup in potential cap ex, but we did not hear that echoed. Esterday from caterpillar housing is a big worry spot for the u. S. Economy. We think we are going to be doing ok. Something tos was get past. We think we are on a trend. The trend is maybe not what we had all hoped for, but there is one simple fact. Kids dont like to live with their parents in definitely. We know that jobs are being gained. They dont like to. It doesnt mean they dont have to. As the labor market picks up and kids are more able to find jobs ez, that was a long time ago. As they are able to find jobs, they will move out of their parents cost the basement and and parents basements find their own apartments. Thehere was the cut to forecast due to the terrible firstquarter. Everyone is in the same boat. The imf is finally getting around to it. Are they a contrary indicator . My friend would say they are in fact an a contra care a contrary indicator. He is pretty good at his job, so i wont dismiss that out of hand. The Second Quarter is looking pretty good. Third and fourth quarters are looking ok. If we want to play sesame street economics, there is one quarter that did not gdph up, and that was the number. How about the rate tightening from the fed . It could be that by the end of the year the fed is sitting on its target for unemployment, the mid5 s. Theyre inflation target is their inflation target is 2 . It is not a recipe for good things happening. I dont think janet yellen sees it my way. Hike inks they will mid2015. We think that is well behind the curve. When they do go, they will go on a consistent basis. We will see a constant stream of 25 basis points. What is the biggest risk in that timeframe for the u. S. Economy . That inflation picks up more. Even if there is no Wage Inflation . No Wage Inflation, but there is growth. Why is there so much wage growth . The Unemployment Rate story is not telling you how many mollify people there are four jobs, rather how many people want jobs. It is a very different metric. People in industries where there is demand are going to see higher wage gains. We are going to see younger workers taking jobs that baby boomers are exiting. Are they going to get paid the same . No. We will see this might be a little more restrained. It doesnt tell us that overall wages are not doing what they are supposed to be doing. Me for onewith second. June durable goods orders are out and they look slightly better than estimated, up by 7 10 of 1 . Olivia sterns has more. We were expecting a rise in durable goods orders, and they have come in a little bit ahead of expectations. You strip out transportation, they have risen by eight 8 10 of 1 . Durable goods orders fell in may by about 1 . That was because of a sharp decline in military spending, a big fall in orders for military equipment. Good news to round out the Second Quarter, a particularly important quarter for durable goods. A lot of economists will be looking at this to gauge th