Is Something Wrong With Amazon’s Margins?
Amazon (NASDAQ:AMZN) is expected to post a loss for 2012 this Thursday, yet the company’s stock price is at an all-time high and a majority of analysts rate it a ‘buy.’
For the fourth quarter, current estimates call for the Internet retailer to post revenues of $22.27 billion, an increase of 27.8 percent from the year-ago quarter, with a profit of $0.28 per share, compared to the $0.38 per share reported in the fourth quarter last year.
The disparity between earnings and revenue point to a particular problem with the way Amazon does business, one that will cause analysts to look closely at the company’s margins in its next earnings report. The Internet retailer significantly discounts some of its products, the Kindle in particular, to remain competitive, and this practice eats away at its margins. In early October, Chief Executive Officer Jeff Bezos announced in an interview with the BBC that the company sells the device “at cost” with profits coming from the sales of online content.
Even with predictions for sales set in a range of $20.25 billion and $22.75 billion for this quarter, earnings per share are expected to decline…
Since the fourth quarter of 2007, the retailer has seen its operating margins shrink, according to data compiled by Tiburon Research Group. While there has been some degree of improved profitability in its North America unit, the division’s margins remains below 4 percent and the margins of Amazon’s International Division have continued to fall. Based on its chart of Amazon’s trailing fourth-quarter operating margin, the firm thinks that the current consensus for the quarter’s earnings per share is too low, but it maintains a full-year estimate for fiscal 2013 below that of Wall Street. Its prediction is for earnings of $0.32 per share for the quarter.
Analysts will be examining the results with particular attention because Amazon’s third-quarter loss of $0.60 per share could push the company’s results down for the full year. The retailer needs to report fourth-quarter profit of roughly $0.31 per share next week for it to break even for the year.
All these calculations are made more difficult by the fact that Amazon does not provide an earnings guidance. However, following its third-quarter earnings report last October, the company said it expected an operating income ranging from a loss of $490 million to a profit of $310 million.