Amazon Q1: Beats Expectations, Highlights Kindle 2 Success

Amazon may be taking a lesson from Apple when it comes to earnings. Forecast low, come in high and keep everyone on Wall Street smiling. The company surpassed analysts’ expectations for the first quarter, giving much of the credit to the re-launch of its e-book reader, the Kindle.

For the quarter, Amazon said it had net income of $177 million, or 41 cents per share, on sales of $4.89 billion, exceeding Wall Street’s estimates of 31 cents per share on revenue of $4.76 billion. In January, the company had forecast first quarter revenue to be between $4.53 and $4.93 billion, though analysts had been expecting the high end of the range. (Statement)

Profits for the quarter were up 24 percent over the same quarter a year ago. Revenue was up 18 percent over the year-ago quarter.

This year, the big news for the quarter was the launch of the Kindle 2. In a statement, Amazon CEO and founder Jeff Bezos said, “We’re grateful and excited that Kindle sales have exceeded our most optimistic expectations.”

Growth in all categories, however, slowed considerably over the year-ago quarter when each of the three categories - Media, Electronics and Other - all saw large jumps. Now, all were down considerably. Only the Electronics segment in North America saw a modest slip.

Retail sales continue to far outpace sales in Amazon’s “Other” category, notably Amazon Enterprise Solutions program and Amazon Web Services. The “Media” category includes sales of books, movies and music. “Electronics” includes computers and other devices, such as the Kindle. Retail may stink in this economic climate - but Amazon is still doing better than Ebay, at least as far as sellers are concerned.

During a call with analysts, the matter of enterprise adoption of cloud computing services came up. CFO Tom Szutak said there has been some “good traction” in the enterprise, as well as startups and small- to medium-sized businesses. noting large clients such as Autodesk, ESPN and a number of hedge funds.

For the current quarter, Amazon said it expects net sales to be between $4.30 billion and $4.75 billion, a jump of 6 percent to 17 percent, compared to the second quarter of last year.

The company ended the quarter with 20,600 employees, a 16 percent increase over the same quarter last year but down 100 from the fourth quarter. In the call, the company noted that the company did some hiring but also had some attrition. The reduction was not a result of cost-cutting efforts.

Shares of Amazon gained less than two percent on the day, closing at $80.61. Shares were on the upswing in after-hours trading.

Comments

[mikebrah:]

OK, I just do not get this at all. Every bull case I read for AMZN contains absolutely NO financial justifications. It is all storytelling, with key words like: growth, innovative, increased margins, etc. etc.

That is fine, and I readily acknowledge all those attributes to be true. But that does not justify paying infinity dollars per share to buy this company. Even if you have a product that cures every known disease, there is still a price where it becomes a bad investment.

AMZN trades over 50x its earnings. I have read no bullish case anywhere that uses any time of financial estimates to explain why buying AMZN for $80/share is advisable. If 50x earnings is still a bargain, then what is fair value? 75x, 80x, 100x? The company just does not make that much money and the coolness of its product does not contribute to your ROIC.

I hope it pops to $90 on this as I look forward to adding to my short.

MM

Apr 23 05:01 PM

[mikebrah:]

CORRECTION:
3rd paragraph
"....no bullish case anywhere that uses any TIME (should read: type)"


sorry
MM

Apr 23 05:03 PM

[TextBookHun...:]

Amazon is doing very well.

I think kindle has helped plus they have taken Ebays/Half.com share in terms of book selling. I am sure used books get sold more than new ones on amazon.

Apr 23 05:04 PM

[Optionsforme:]

Doing well ? They guided down net income from 12% to 49% for next quarter, that a growth stock ?


On Apr 23 05:04 PM TextBookHunting.com wrote:

> Amazon is doing very well.
>
> I think kindle has helped plus they have taken Ebays/Half.com share
> in terms of book selling. I am sure used books get sold more than
> new ones on amazon.

Apr 23 06:06 PM

[Optionsforme:]

Funny how the media skews everything. They added several cents by lowering their tax rate, that's quality earnings ? Why doesn't anybody mention that? They guided down from 12% to 49% net income for the next quarter, were is that mentioned? You mean its a good idea to pay 82 dollars for a stock that sells at a PE of 50+ and PEG of 2.6 that said its net income will decline an average of 30% ? Amazon can sell but they can't make money. Next quarter they will make 2% to 3% net on sales. That tell me this stock is way overvalued. E-bay made .39 cents a share without the tax gimmick and sells for $16 dollars, why pay $82 for .41 cents that include accounting trickery. The analyst are corrupt if they don't point these things out.

Apr 23 06:11 PM

[Harry Tuttle:]

According to Bloomberg the consensus estimate was $0.45. Can anyone explain the difference? Thanks.

Apr 24 09:32 AM

[Optionsforme:]

They made .07 due to deferred tax assets, typical Amazon bogus numbers.

Apr 24 10:00 AM

[elliotz:]

I am begining to slowly short AMZN, at the moment i am being cautiouse and moving in as the stock goes up because this is the new darling on Wall Street and who know how far they can hype up this stock. Dont get me wrong I think AMZN is a great company who has alot of future prospects especially with Kindle but at these level the price is not justified by the fund.

Apr 24 01:18 PM

[optionboy:]

Well we almost reached a PE of 60 today, seems ludicrous for any company in this environment. Amazon growth does not justify this high a multiple. How come no one in the media mentions how Amazon padded EPS by tweaking taxes. They do this every quarter with one item or another with the complicity of the media and analyst. What a shame its all become a crooked game.

Apr 24 04:31 PM

[Paul V. Azz...:]

Forecast low, come in high, and keep them smiling is nothing new to Apple and Amazon. For example, it has been used by Warren Buffett for ages. I read all his reports, including his early partnership ones, and one of the great lessons from him is how to manage others' expectations.

I used to be a corporate adviser and whenever my clients did not stick to this simple advice they managed to get in trouble (suppliers and unions demanding more) before they even reported the forecasted rosy earnings.

Another twist, often made use of by Buffett, is to attribute last period's good profits to some fluke, that you were blessed by a set of circumstances unlikely to repeat (so how can you pay higher wages?). This will win you another year.

I must confress that as a young man I used to keep my parents happy this way, too, by always making them expect low marks in my exams - in this way average made them smile, while above average got them exhilarated. They both knew I was doing this, of course, but preferred it to the alternative and so they played along.

Apr 25 11:08 AM