After big earnings miss, will activists circle Amazon?

Amazon an activist target?

These days, virtually any underperforming company can come under attack from an activist investor. Could Amazon be the next big target?

That was a question raised by some hedge funds that CNBC.com spoke to after the e-commerce company posted disappointing third-quarter results Thursday evening (none of whom wanted to be named). The stock fell 8 percent Friday and is now down 28 percent since the beginning of 2014.

"Investors have been giving this company a pass for like 20 years, the question now is this potentially an activist situation?" said Carol Roth, author of "The Entrepreneur Equation," on CNBC's "Closing Bell."

Hey Amazon, where's the profit?

The depressed stock price has drawn attention because Amazon's problems actually appear fixable. Namely, the company seems to find new ways to spend money every quarter, from developing a smartphone with a 3-D screen to delivering groceries in Brooklyn, New York.

That translates to some ugly numbers. In the third quarter, operating expenses rose 37 percent while sales increased only 20 percent. If expenses were slashed, operating profit could improve dramatically. After all, the company's gross profits look quite healthy, with analysts expecting 25 percent growth in 2014.

Unfortunately, there's an obvious barrier preventing any activist from effecting change: CEO Jeff Bezos. Although Amazon has just one share class with all shareholders getting an equal vote, Bezos has held onto 18 percent of the stock. According to one activist, Bezos probably has enough votes to prevent an agitator from going against him.

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Another issue: We don't really know where Amazon is spending so much money. The company has notoriously poor disclosure, only breaking out revenue for broad categories.

That said, the company is unlikely to ignore frustrated investors forever. And If Amazon starts showing a little financial discipline, it could be rewarded with a rebound in its share price.

Indeed, Amazon is the cheapest it has been in quite some time: The company's enterprise value, adjusted for cash, is 15.6 times 2015 consensus earnings before interest, taxes, depreciation, and amortization—a level it hasn't reached since 2010.

Where does Amazon spend its money? On top of the company's experiments at home, it is probably spending serious money expanding into large markets abroad. While the size of the investment is unknown, Amazon has worked hard to get a foothold in China, a potentially enormous opportunity. The trouble there is that Chinese companies like Alibaba and JD already dominate their home country, and it could take years for Amazon to make serious headway.

The story could be similar in other countries. Wells Fargo analyst Matt Nemer points out the company is also expanding in India and Japan. While those markets could eventually pay off, they are likely costing Amazon a significant amount of money, he said.

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The good news is some costs will probably fall naturally in the near future. Amazon's cloud-based data storage business, for instance, may be a drag on profits at the moment as the company builds new facilities. But those costs should soon taper down as Amazon establishes a significant presence overseas.

And while the cloud business may not contribute much to profits now, it may one day be more profitable that Amazon's bread-and-butter retail business. Just consider the profits at Rackspace, a company with a similar cloud business. Rackspace has an Ebitda margin north of 30 percent versus a margin of about 7 percent for Amazon.

Amazon's costs will probably stay on the rise for some time. The real hope is that they'll grow at a more reasonable rate—similar to revenue growth. Indeed, it would be risky to deprive Amazon of the experimental culture that Bezos has instilled over the last two decades. As Nemer says, "You can complain but you still want Bezos running the show."

Amazon spokesman Craig Berman didn't reply to a request for comment from CNBC.