Earnings Scorecard: Amazon.com – Analyst Blog

Amazon.com (AMZN) reported first quarter earnings that beat the Zacks Consensus by 6.45%. The positive earnings surprise was less than in prior quarters, as estimates were already adjusted to reflect pre-recession type growth.

 

 

Earnings were negatively impacted by competitive pricing, mix and currency, with the improvement in North American margins offsetting the decline in International. However, the company saw solid growth in revenue.

 

Revenue increase of 45.9% from the year-ago quarter exceeded the high end of management’s guidance of a 32% to 43% increase. The improvement was attributable to a 40% growth in units and an increase in active customer accounts to 114 million, which included Chinese customers for the first time. Amazon also benefited from higher third-party sales and a 22% increase in active seller accounts. Both North America and International segments grew double-digits from the year-ago quarter, although International outgrew the North America segment by far.

 

Operating profit dollars jumped 61.5% year over year. However, operating cash flow was negative, given the $1.9 billion reduction in payables.

 

Management guided to a year-over-year revenue increase of 31%−44% and operating income profit increase of 39%−102% in the second quarter ending in June.

 

 

There were a large number of estimate revisions following the company’s earnings announcement, with around 60% of the 33 analysts covering the stock revising estimates for the next two quarters and over 72% revising for the year.

 

Only 6 analysts raised estimates for the June quarter, while 14 lowered. Similarly, 8 analysts raised estimates for the September quarter, while 11 lowered. However, the reductions in estimates were not so much related to weakness in the company’s business, as it was to the increased penetration and share gains in International markets and diversification away from media products, which typically carry higher margins. Of course, we can hardly discount the danger of digital media distribution, which could eat into top line numbers, or the possibility of the government levying online sales tax, which would affect the bottom line numbers.

 

Amazon is clearly expected to have another very strong fourth quarter (December), which is the reason for 17 analysts raising estimates for the year, versus 8 lowering. Moreover, analysts have extended the same reasoning for 2011 because there are 16 positive revisions and 7 negative.

 

 

The number of analysts moving in opposing directions has resulted in no change to the Zacks Consensus estimates of 55 cents and 62 cents for the June and September quarters, respectively.

 

However, the Zacks Consensus estimate for 2010 has gone up 5 cents and that for 2011 has increased by 8 cents.

 

 

While we remain extremely positive about Amazon’s international growth prospects, market share gains, penetration into new retail segments and strong customer growth, we believe that the business mix, increasing competition and the resultant pricing pressures will lower margins.

 

Moreover, we believe that these factors continue to impact all the major online retailers, including eBay Inc. (EBAY), Expedia Inc. (EXPE) and Priceline.com (PCLN), all of which share the same #3 Zacks Rank (Hold) as Amazon.com.