business newsCan the Kindle Fire Ignite Amazon's Earnings?
By
Vincent Trivett
Jan 31, 2012 1:20 pm
Don't expect eye-popping short-term results from Amazon after the close.
PRINT
Dozens of S&P 500 (SPY) companies are reporting earnings today, but none are getting as much attention as Amazon (AMZN).
Here's the skinny on what Wall Street is expecting from Amazon this afternoon:
In recent quarters, Amazon's margins have been paper thin. Analysts expect operating margins to fall to 1.3%, down from 3.6% one year earlier. With revenue growing at a clip, this should be seen as a good thing. (Read: Why Amazon's Low Margins Deserve Praise) Amazon is wreaking havoc on its competitors, not just in online retail, but also brick-and-mortar retail. Right now, Amazon is sacrificing profit for revenues and market share.
A lot of investors are turned off by Amazon's stratospheric valuation. Currently, Amazon price to earnings ratio is at 101. That makes Amazon about 7 times more expensive than Apple. This shows that the market is willing to be patient with letting Jeff Bezos take over the world.
Speaking of low margins, one caveat to the Kindle Fire story is that the device itself doesn't make any money for Amazon. According to experts, Amazon actually sells the tablet for slightly less than the production cost, to say nothing of marketing and shipping costs. Kindle Fire sales should be regarded as an investment, like Gap (GPS) opening a new store. That means that customers, by becoming Kindle owners, are paying to become loyal customers of Amazon. It's a bit like the business model that we see with inkjet printers: cheap printer, expensive ink. Pretty much mandatory customer loyalty.
The Kindle Fire also comes with one free month of Amazon Prime, which is easy to get addicted to. Prime is an insanely successful loyalty program. Members pay $79 in exchange for one year of subsidized shipping, video streaming, and the opportunity to borrow e-books. So even if the Fire sales don't translate into dazzling profits right away, within a few months, it should pay off. Analysts are looking for higher earnings from Amazon--about $0.42 per share the first quarter of 2012.
If Amazon does surprise us today with some higher-than-expected earnings, tech sector ETFs could get a nice boost. The losers will be any brick-and-mortar operation that Amazon is eager to conquer, especially Barnes and Noble (BKS), Best Buy (BBY), and Walmart (WMT).
Twitter: @vincent_trivett
Here's the skinny on what Wall Street is expecting from Amazon this afternoon:
- Analysts polled by FactSet expect Amazon to earn just $0.17 per share, down from $0.91 a share from a year ago.
- Sales are forecasted to jump 40% year over year to $18.3 billion.
- The crowd-sourced outlook on Estimize.com is more bullish, looking forward to $0.48 per share.
- Amazon's stock is still south of 200, but up more than 10% over last month.
In recent quarters, Amazon's margins have been paper thin. Analysts expect operating margins to fall to 1.3%, down from 3.6% one year earlier. With revenue growing at a clip, this should be seen as a good thing. (Read: Why Amazon's Low Margins Deserve Praise) Amazon is wreaking havoc on its competitors, not just in online retail, but also brick-and-mortar retail. Right now, Amazon is sacrificing profit for revenues and market share.
A lot of investors are turned off by Amazon's stratospheric valuation. Currently, Amazon price to earnings ratio is at 101. That makes Amazon about 7 times more expensive than Apple. This shows that the market is willing to be patient with letting Jeff Bezos take over the world.
Speaking of low margins, one caveat to the Kindle Fire story is that the device itself doesn't make any money for Amazon. According to experts, Amazon actually sells the tablet for slightly less than the production cost, to say nothing of marketing and shipping costs. Kindle Fire sales should be regarded as an investment, like Gap (GPS) opening a new store. That means that customers, by becoming Kindle owners, are paying to become loyal customers of Amazon. It's a bit like the business model that we see with inkjet printers: cheap printer, expensive ink. Pretty much mandatory customer loyalty.
The Kindle Fire also comes with one free month of Amazon Prime, which is easy to get addicted to. Prime is an insanely successful loyalty program. Members pay $79 in exchange for one year of subsidized shipping, video streaming, and the opportunity to borrow e-books. So even if the Fire sales don't translate into dazzling profits right away, within a few months, it should pay off. Analysts are looking for higher earnings from Amazon--about $0.42 per share the first quarter of 2012.
If Amazon does surprise us today with some higher-than-expected earnings, tech sector ETFs could get a nice boost. The losers will be any brick-and-mortar operation that Amazon is eager to conquer, especially Barnes and Noble (BKS), Best Buy (BBY), and Walmart (WMT).
Twitter: @vincent_trivett
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Daily Recap
Everything you need to know for the next trading day.
Trading Radar (weekly)
Your road map to all the events that will effect financial markets in the week ahead.
Name
Email
*
Phone
* required field
