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Tech Check
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CNBC.com Amazon Earnings |
Mahaney downgraded these shares to a "hold" on recession risks back on November 5 with a $52 week target.
Yet on Monday, he upgrades shares to a "buy," with a whopping $97 target.
Last I checked the grips of the recession are still firmly around consumer necks (unless you're Apple), and from the outside looking in, there doesn't seem to be the kinds of catalysts that warrant this kind of optimism.
Mahaney though has found some diamonds in all that rough, indicating that Amazon's operating margins have the potential to expand faster than anticipated because of a drop-off in retail discounting, new "fulfillment operations efficiencies," and better marketing by the company. He also says the company's organic growth is more attractive than that of eBay and Yahoo, and "robust top-line growth may be more sustainable than expected."
As far as the Street is concerned, earnings per share consensus is 31 cents on revenue of $4.752 billion. Other metrics to ponder: Pro forma operating income expected to come in around $268 million, and a pro forma operating margin of 5.6 percent. As far as second quarter guidance is concerned: Analysts expect revenue around $4.609 billion, operating income of $251 million; total year revenue of $21.99 billion and total year operating income of $1.192 billion.
Mahaney will be focused on North American revenue, where he anticipates 14 percent growth, though anything above 16 percent would be considered bullish, but below 13 percent could be perceived bearish; North American gross margin should be around 25.7 percent, though something above 26.2 percent would be positive and below 25.1 percent negative; International revenue growth should see a 15 percent increase, with 16 percent or better being good, and 13 percent or worse being bad.
There have been some key developments for Amazon on the quarter, not the least of which is the new Kindle book reader and the ongoing Oprah love-fest with the gadget. It's still largely a niche product that sells well, even sells out, for Amazon, but on a $21 billion annual revenue rate, a few hundred million dollars from Kindle, even if it is really that much, doesn't move the needle all that much. Let's talk again in a couple of years and see if it mushrooms like Apple's iPod. Kindle offers big opportunities, but it's going to be a while. Mahaney, incidentally, estimated that Amazon sold a half million Kindles in 2008.
That said, Amazon's video-on-demand service for HD movies and TV shows is also intriguing, offering 40,000 titles, partnerships and compatibility with Roku, Tivo, Sony and Panasonic Viera Cast HDTVs and soon Panasonic Blu-ray disc players. Another interesting business foray to watch for investors.
Jefferies analyst Youssef Squali told clients he expects Amazon to come in at the high end of expectations, looking for 33 cents on 44.81 billion. He's got a "hold" and $60 target on shares.
Still, with eBay's better-than-expected report yesterday bodes well for Amazon, even as consumers seem to still be cutting back on spending. Amazon continues to promote, discount and free-ship so much of the products on the site, and that could eat into margins. We'll find out tonight if the company was able to offset those anticipated declines with increased volume.
Amazon, like Apple, has a lot to prove. Shares have scampered 43 percent over the past three months. The pressure is on this company to perform, and meet the tall order it faces with earnings tonight.
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes