Valuation, Timing & Margins Catch Up To Amazon.com (AMZN)

Amazon.com Inc. (NASDAQ: AMZN) has turned in earnings for its third quarter, and we will be paying extra attention to its fourth quarter.  The seller of everything online reported earnings of $0.14 EPS on sales of $10.88 billion, which compares to the Thomson Reuters targets of $0.24 EPS and $10.93 billion in sales.  Operating income was $79 million.

Amazon also guided the fourth quarter to come in at %16.45 to $18.65 billion in sales and it put the range for operating earnings at -$200 million to a profit of $250 million.  The Thomson Reuters estimates are $0.86 EPS and $18.05 billion in revenues.  As noted in the preview, the fourth quarter is Amazon’s “money quarter” as it includes Christmas and the holiday season sales.

We have been concerned each quarter about Amazon’s margins and its operating margins came in at 0.7%.  North American sales are currently about 20% larger than its international sales.  Even before the guidance, Amazon traded at more than 100-times expected 2011 earnings.   The big outlier was the new Kindle sales. 

The news may finally be catching up to Jeff Bezos and friends today.  Shares closed down 4.4% at $227.15 versus a recent all-time high of $246.71, but shares are down sharply and just under $194.00 as of about 4:17 PM EST.

We will hold off before tallying up all of the post-conference call judgment.  Bezos has had similar quarters before where the reception went from bad to good.  We do not believe that can happen forever and we believe that at some point investors will start to demand better margins and higher profits.  It is not exactly as if Amazon is an emerging online retailer.

JON C. OGG