Amazon's Tall Order: Pleasing Investors
Amazon shares started last quarter right at $100 a share, and since then, it's been all downhill from there. Frustrated investors will be looking for guidance from the company later today that the slide is over, and that the company is poised for a strong, back half of 2008.
But that's a tall order for Amazon's executives.
The Street is looking for 32 cents on $4.08 billion. But after last quarter's report, where the company merely met expectations, there was a fair amount of concern that the "beat and raise" days might behind it.
The concerns though may be dissipating, especially in light of Google's far-stronger-than-expected results last week -- and eBay's weaker-than-expected results the day before.
Google's results proved consumers are still heading to the Internet, searching for goods and services, a trend some had worried was slowing because of ongoing, macro-economic concerns. And eBay's results suggested that consumers were still buying goods and services online, even if they weren't buying from eBay: the company's core auction business and new active user categories slowed to a crawl -- but eBay's PayPal saw a big jump in business.
Couple that with comScore's data -- I know, I know, but unlike the Google data, comScore is showing an acceleration in Amazon's clicks; take it for what's worth -- and Amazon could be a sleeper.
Mark Mahaney at Citigroup concurs with the comScore data: "There appears to be an acceleration of growth of traffic to Amazon sites. People are going to Amazon at a faster rate than they were in the second half of last year. The year-over-year growth that was reported on Amazon's websites in March was stronger than we've seen in six months. So something's happening here."
One of those things happening, he surmises, is that Amazon might be becoming a top retail destination for things other than consumer electronics, but just about anything and everything a consumer might be shopping for: "Literally, toothpaste," Mahaney says.
Despite Amazon's precipitous fall during the quarter, off about 23 percent since the last time the company reported, there's still a healthy amount of skepticism on the Street that the company is bargain priced.
The company, and its razor-thin profit margins, is still trading at 37 times next year's earnings. Google, growing so much faster, only trades at 22 times next year's earnings, which suggests investors are still keeping a very healthy premium on these shares.
Thomson and Starmine both say analysts are looking for 29 cents and $3.83 billion in revenue for Amazon's June quarter. Healthy growth, but enough to justify a stratospheric multiple like Amazon's? You gotta wonder.
The fact is, Amazon is locked in a pitched battle with eBay for online shopping dominance and Mahaney brings up a stellar point: "Amazon's advantage is that it's got the logistics infrastructure. So what was a business model disadvantage five years ago, the fact that they had distribution centers, the fact that this was a mid-single digits operating margin business, five years later on, today, is actually a structural advantage over eBay."
While Amazon's got the pack-and-ship model down pat, eBay is still mostly a patchwork of millions of individuals -- not companies -- selling products online. And while consumers are looking for consistency and turning to the 'Net for everyday shopping, that puts Amazon in the catbird's seat.
EBay runs the risk of a back-to-the-future business model, where shoppers visit only for the hard-to-find, one-off, collectible items that aren't available anywhere else. A good business. But not the growth model it's after.
If Amazon plays its cards right, it can become the web's CostCo, and Wal-Mart, and Nordstrom's, and everything else, all rolled into one. A tall order, sure, but the company's name is "Amazon," isn't it?
Questions? Comments? TechCheck@cnbc.com