(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Amazon.com Inc. (AMZN ) reported what appeared to be strong results last week, sending its stock price soaring by nearly 15 percent, adding almost $67 billion in market cap to the company over the next few days. But after a closer look, the ecommerce giant's results are far less impressive than the numbers circulated in the company's press release. The reality is that two factors made Amazon's quarterly report look good: sharply lower income tax payments and drastically lowered analyst estimates.

Low Taxes, Low Estimates

Amazon's third-quarter revenue came in about 3.5 percent higher than estimates, at $43.74 billion, while EPS of $0.52  beat the consensus estimate of $0.01, which is as low as you can get without shaving the estimate to zero, or $0.00. But Amazon's report showed weakness: when you look at income before taxes, it was only  $316 million, down from $491 million from the previous year. Despite this decrease, Amazon still managed to report net income of $256 million in the current quarter, vs. $252 million a year ago.

How did Amazon do it? By paying taxes of only $58 million vs. $229 million in the same quarter a year earlier. 

AMZN Provision for Income Taxes (Quarterly) Chart

Hard To Gauge Future Quarter

Amazon's taxes have varied dramatically in recent quarters, and the variability has made modeling estimates for future quarters difficult. This can lead Wall Street to set the bar too high or low for any given quarter. For example, during the second quarter analysts were looking for Amazon to report earnings of $1.40 a share, but when the company reported only $0.40, estimates for the third quarter and fourth quarter were lowered considerably. In fact, before the second-quarter miss, analysts estimated Amazon would earn $1.15 for the third-quarter. After the miss, they lowered their consensus estimate to $0.01, as mentioned earlier, setting the stage for a monster beat. 

Lowest Taxes In Years

Amazon's taxes of $58 million, were its lowest since September of 2014. Had Amazon paid taxes equal to the $229 million in the same quarter a year ago, the company would have only had net income of $85 million, which would have equaled EPS of $0.17, a third of what they actually reported. It is not made clear in the press release why taxes in the quarter were so much lower than a year ago. 

Wide Range

Amazon's tax payments have been varied widely in size since 2016, ranging between $250 million and $475 million, which again could be one of the primary reasons why analysts have had such a tough time gauging the company's earnings on a quarterly basis. But even more concerning might be the pre-tax income for Amazon, which has been declining despite a significant jump in revenue. 

AMZN Pre-Tax Income (Quarterly) Chart

One can argue that Amazon's pre-tax income has been falling because the company has been spending heavily in research, development and marketing to help drive future revenue growth. That increased spending could have raised eyebrows on Wall Street in the last quarter if the company hadn't benefited from a lower tax rate.

One stark fact, though, remains after this analysis. Amazon's stock surged on what investors assumed were strong earnings - which in the end really weren't strong at all.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.