Amazon Earnings Preview: All About Margin and Growth Out to 2015

Companies and Brands

Published: January 29, 2013 12:35 pm

Amazon.com Inc. (NASDAQ: AMZN) is set to report earnings on Tuesday after the close. The online retail giant which now sells almost everything is expected to report earnings of $0.29 EPS on a sales gain of almost 28% to $22.26 billion in revenue. Back in October, Amazon gave guidance of $20.25 billion to $22.75 billion in revenue for growth of 16% to 31%.

For the quarter ahead, the estimates from Thomson Reuters are $0.34 EPS and $16.86 billion in revenue. In case Jeff Bezos decides to be bold and offer guidance for the year ahead, the Thomson Reuters consensus estimates are $1.70 EPS and 27% sales growth to almost $79.3 billion in revenue.

The big question we have is the plummeting operating margin at Amazon. Wall Street has taken the word of Jeff Bezos for well over a year now that the low margin is the price to pay now for advanced market share out in 2015 and beyond. Wall Street is just not as concerned about operating margins as we are, and we would worry about shareholder losses if any problems arise or if Amazon starts to disappoint. Amazon’s operating margin, as a percentage of worldwide net sales, was only 1.5% in the fourth quarter of 2011 and was -0.2% in the third quarter of 2012.

With shares trading around $270 today, Amazon’s 52-week trading range is $172.00 to $284.72. This stock trades at close to all-time highs and it trades at over 150-times the year ahead’s expected earnings.

We would note that the big blow-off peak on the chart was seen just on Friday. If investors and speculators decide that Amazon’s run this year has been too much, there is quite a bit of room for this to fall before support comes into play. Shares are up 8% year-to-date in 2013 as the stock closed out 2012 at the price of $250.87. We would note that the 50-day moving average is down at $255.79 and the 200-day moving average is down at $236.48. The price levels of $255 to $260 had been resistance on the chart until this most recent breakout to all-time highs.

For another price point, the Thomson Reuters consensus price target is $296 for Amazon shares. We would note in an ending statement that options traders appear to be braced for a move of $15 to $17 in either direction if we use the speculative February put and call options expiration.

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