Earnings Preview: Amazon.com to report 2Q results

SAN FRANCISCO - Amazon.com Inc. reports its earnings for the second quarter on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: In the second quarter, the Seattle-based online retailer unveiled a large-screen Kindle digital reader, the Kindle DX, and settled a long-standing legal dispute with Toys R Us Inc. Amazon also encountered efforts by several states to compel it and other online retailers to collect sales taxes due to their use of online affiliates — people who run Web sites that refer customers to it — in those states.

In May, Amazon debuted the Kindle DX, aimed at newspaper readers and at college students eager to save money on textbooks. The device costs $489 — nearly $200 more than the Kindle, whose price Amazon lowered to $299 in July. At its launch, three textbook publishers — Pearson PLC, Cengage Learning and John Wiley & Sons Inc. — had agreed to sell books on the Kindle DX, and at least half a dozen universities agreed to run pilots using the device in the fall.

In June, Amazon agreed to pay toy seller Toys R Us $51 million to end a dispute stretching back to 2004. The suit related to a partnership that gave Toys R Us exclusive rights to supply some of the toys on Amazon's site. Toys R Us claimed that Amazon violated the deal by letting others sell some toys on Amazon.com. The online retailer said Toys R Us was not keeping items in stock.

Amazon will make the payment during the current quarter, though it was charged as operating expenses during the second quarter. The company declined to say how the settlement would hurt second-quarter results. JPMorgan analyst Imran Khan said in a client note at the time that it he thought it would lower Amazon's profit by about 8 cents per share.

To avoid collecting sales taxes in Rhode Island, Hawaii and North Carolina, in June Amazon stopped working with online affiliates in those states. The moves were made after Rhode Island and Hawaii passed laws requiring online retailers to collect the taxes if they have Web affiliates based in those states — much like a rule New York passed last year — and Amazon is expecting North Carolina to pass similar legislation. Amazon is now working to reinstate Hawaii affiliates, since the state's governor vetoed the bill not long after it was passed there.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect second-quarter earnings of 31 cents per share on $4.68 billion in revenue, on average.

ANALYST TAKE: "Amazon has been adding product subcategories at a steady clip and recent traffic data to the site points to continued strength in visitation, both of which bode well for revenue growth," Jefferies & Co. analyst Youssef Squali wrote in a recent note to clients.

Squali rates the stock "Hold" with an $85 price target.

WHAT'S AHEAD: Amazon may have to contend with more states trying to force it to collect sales taxes, though it's unclear how this could impact the company further down the road.

STOCK PERFORMANCE: Amazon shares finished the quarter up 14 percent, closing at $83.66 on June 30.

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