Amazon Earnings: Will They Spark Company Shares?

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This has been a wild ride for Amazon shareholders these last few months, touching $100 a share at the end of October, sliding into the $70s a few weeks later, tickling $100 a again just a few weeks ago, and now languishing back at $70 a share once again. Yuck.

Even with that volatility, Amazon's price-to-earnings ratio is still the highest among the top names in net stocks: 46x next year's earnings, compared to Google's 26x; Yahoo's 36x; and eBay's 14x. Some analysts say today could hold some bright news for investors and justify the multiple. The expectation is for a blockbuster fourth quarter from the company. Amazon has already said this past holiday shopping season was its best on record.

The Street is anticipating 48 cents a share in EPS on $5.38 billion in revenue. is looking for a penny above, but it could go even higher than that if the company's key metrics come together (Citigroup's at 51 cents as an example.)

Remember that online holiday shopping was very strong; consumer electronics seemed to juice a number of retailers; and despite economic worries in the U.S., better than 50 percent of Amazon's revenue comes from international customers. A weak dollar continues to help this company.

Citigroup's Mark Mahaney says Amazon has "dramatically improved the personalization of the site; you've seen it in the numbers; you've seen a clear acceleration of the revenue growth, with and without help from Harry Potter." But far more important than that, Amazon has seen a dramatic improvement in margins, a long-time issue for investors watching Amazon try to squeeze more dollars to the bottom line.

Key technologies are now in place, allowing Amazon to trim its research and development expenses. There's also perceived pops in third party international sales. All leading analysts to expect an operating margin of 5.75 percent.

"Amazon's fundamentals here look about the most attractive in the internet space," says Mahaney.

But like eBay and Yahoo before it, Amazon's shares will move or up or down on guidance and guidance alone. Both of those companies got nailed and Amazon runs the same risk. Analysts expect 35 cents in EPS for its first quarter on $3.95 billion in revenue; $1.63 in full-year EPS on $18.3 billion in revenue.

The real question will be whether Amazon can weather recession worries; or whether it's actually positioned better than most because, as an online retailer offering consumers better deals than they might get elsewhere, they won't see a fall-off in shopper traffic--and could see increases. (That's a lot of "whethers" and "weathers!")

We might get some color on the electronic book reader Kindle, a product that I just don't see as offering anything meaningful to the company. Questionable hardware seeking market traction, certainly not addressing some unmet market need from a net company with no real hardware experience? Not sure I see a future there. But I digress.

Far more interesting are the company's music downloads, adding Warner Music Group to its online music store during the quarter; though still not even showing up in Apple Inc.'s rear view mirror. Also interesting: how Amazon will continue to compete with eBay as that company lowers listing fees and becomes a far more aggressive competitor to Amazon and its auction business.

Sandwiched between Yahoo yesterday and Google tomorrow, Amazon enjoys the limelight all to itself after the bell later today.

Questions? Comments?