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Amazon's Earnings Report a Good Read


But why aren't insiders buying?

On Wednesday after the close, online retailer (AMZN) released its second-quarter numbers. They were in a word, solid. In the period ended June 30th, the Seattle-based company earned $158 million or $0.37 a share - nearly double the $78 million or $0.19 a share it earned in the comparable period last year, and a hefty $0.11 north of analysts' expectations.

Excluding a large asset sale (its European DVD rental business), however, Amazon actually beat the number by only $0.02. But the overall picture is still strong.

The firm generated about $4.06 billion in revenue, almost 41% more than it did in the same period last year. The number was also markedly larger than $3.96 billion the Street had been expecting. Strong North American and international sales played a role.

At the same time, a number of product areas, including books and electronics, showed encouraging levels of growth - which may seem surprising, given how badly many other retailers are struggling. This could indicate a behavior shift: Strapped consumers may be heading online to make discretionary purchases, thereby saving themselves the cost of the gas required to drive to the mall.
While Amazon itself is spending more on shipping costs, its gross margin totaled 23.8%; its operating margin came in at 5.3%. That's a respectable number, particularly given the operating environment and the fact that its gross and operating margins for 2007's second quarter were 24.3% and 4%, respectively.

This suggests 2 things to me: Management has been keeping a close eye on costs, and that the company is making up in volume for what it lost when it lowered prices on its wares. Both are important.
Another interesting point: The company said it expects third-quarter sales to come in between $4.2 and $4.425 billion. That's good news, because it's in line with the $4.23 billion that the Street is expecting. Moreover, Amazon expects full-year net sales of between $19.35 and $20.1 billion for 2008. Analysts had been looking for $19.6 billion.
I have two thoughts on this. First, that this could cause some sell-siders to up their full-year numbers; second, that management's willingness to increase guidance is a strong sign of confidence.
But there is one cause for concern, and it isn't small: Though the shares have been trading toward the lower end of their 52-week range, insiders haven't been spending a lot of their money on the stock. In fact, a quick look at the insider data shows no open market purchases have been made over the last six months.

Which begs the question: If Amazon's prospects are so strong, why aren't insiders bellying up to the bar?
Amazon closed at $70.54, up $2.57 or 3.78%. The shares were up more than $6 in after-hours action.
No positions in stocks mentioned.

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