Will Amazon Stick to Its Strange Equation?

Amazon.com (NASDAQ:AMZN), known for betting big on long-term profits, is focusing on increasing hardware sales at inconsequential margins in the hopes of generating a greater revenue stream from media sales. As a result of its big push in sales, Amazon is expecting relatively thinner profits.

Average estimates say Amazon’s first-quarter sales, to be announced after markets close on Thursday, grew 31 percent from the year-ago period, with revenue climbing to $13 billion. However, the company is expected to report earnings of 7 cents per share, down from 44 cents a share for the same period last year. In the previous quarter, the company reported earnings of 38 cents a share on a revenue of $17.4 billion.

“While we expect revenues to come slightly above consensus, data on [first-quarter] retail and e-commerce has been mixed and our confidence on any revenue estimate is limited,” Bernstein Research’s Carlos Kirjner wrote in a note.

With a new Kindle Fire version on its way, sales of the soon-to-be outdated devices are expected to have weakened, though Amazon does not usually disclose exact device sales figures. But that may actually end up improving margins, as Amazon is believed to be selling its hardware at a near-loss. Of course, the company expects to offset hardware losses with growth in media sales for the devices. Another sales figure to be watched will be third-party online sales, which also provide higher profit margins.

Amazon largely competes with eBay (NASDAQ:EBAY) in the e-commerce area and with Apple (NASDAQ:AAPL) in the web content space, as well as the tablet arena, and is watching closely a government lawsuit against the latter over its e-book pricing scheme.

Amazon also invested last quarter in its sales fulfillment centers. The company grew its employee base 67 percent from the end of 2010 to the end of 2011, which could mean higher operating expenses.

“We remain positive on Amazon ahead of the [first-quarter] report,” Stifel Nicolaus’ Jordan Rohan said, adding that “we admit that it is tougher than ever to forecast the revenues and margins.”

The stock has stayed fairly flat, closing 2 percent higher on Wednesday at $194.42. It had reached a high of $205 last month.