The Seattle, Wash.-based company has spent the last few years pouring money into upgrading its warehouses, developing new technology and improving its digital library for its electronic devices. Last quarter, for example, it acquired robot manufacturer Kiva Systems to operate its shipping centers. Although the spending has caused Amazon's revenues to surge, it has pressured the company's bottom line.
Amazon's total worldwide operating margin was 1.5% during its fiscal first quarter. By way of comparison, e-commerce giant eBay's (EBAY)
BMO Capital Markets expects that Amazon's margins will be in the spotlight for some time. "We expect the company to spend heavily in fulfillment centers as well as technology and content to drive this robust growth, compressing operating margins in the short term as a result of these expenditures," explained the research firm, in a recent note.
Nonetheless, BMO rates Amazon 'market perform', predicting continued robust revenue growth.
Amazon did not report a gross profit margin during its first-quarter results earlier this year, although YCharts estimates it was 23.95%. Apple's most recent gross profit margin, in contrast, was 42.8%, while retailer Target
Carlos Kirjner, an analyst at Bernstein Research, rated Amazon 'outperform' with a target price of $251 in a note to clients on Monday. He projects 32 cents of earnings for the second quarter, "driven primarily by gross profit margin expansion."
Amazon's shift to selling more of its products through third parties and the growing popularity of Amazon Web Services is seen as benefiting the company's margins. The company's mix shift is yet to be fully incorporated into consesus estimates, providing upside opportunity, according to Kirjner.
After eBay and Google's
"2Q12 results from eBay and Google suggest to us that European e-commerce trends remained strong in the quarter and we believe Amazon should benefit here as well," he wrote in a research note on Tuesday. "Additionally, we believe the shift to Third-Party sales should help subsidize Amazon's investments in Fulfillment Centers and international expansion, though we note a strong USD could impact guidance for 3Q12."
However, UPS (UPS)
A number of tech heavyweights have already identified tough economic conditions on the other side of the Atlantic. Chip giant Intel
Analysts expect Amazon to report $0.02 of earnings on $12.89 billion of revenue in the second quarter.
The online retail giant's shares have risen 12.13% since the company announced its first quarter earnings at the end of April. Shares rose 1.07% to $218.12 during Thursday trading.