As we approach the end of Q3 2013, a couple of reasons are popping up that make it highly likely Amazon.com (AMZN) will once again miss revenue growth estimates. This article covers those reasons.
ChannelAdvisor (ECOM) data continues sliding
As ChannelAdvisor reported August same-store-sales for Amazon.com; the trend towards lower and lower growth rates continued unabated. Amazon.com is now averaging growth of just 24.5% year-on-year for Q3 2013, versus 29% in Q2 2013 and 33.6% in Q1 2013. The slowdown is massive and it implies slower growth for Amazon.com's revenue growth as well.
However, since revenue growth consensus for Q3 2013 already stands at 21.4% year-on-year versus the 22.4% reported on Q2 2013, directionality towards lower growth doesn't help us establish whether the slowdown is more or less severe than expected. We thus have to dig deeper.
It turns out that there's also a massive correlation between the growth numbers reported by ChannelAdvisor and Amazon.com's revenue growth. This correlation bears an R2 of 0.90 and can help us establish what the ChannelAdvisor 24.5% growth rate implies for Amazon.com during Q3 2013. The relationship looks as follows.
Using the equation depicted above, we can calculate that Amazon.com is expected to grow revenues at 18.0% year-on-year in Q3 2013, unless September goes exceedingly well (I can update the model once September CannelAdvisor numbers are divulged). 18.0% year-on-year is well below the present 21.4% expectations. It's also lower than the 20% barrier. Hence the ChannelAdvisor data is the first indication that Amazon.com is likely to miss revenue growth estimates once again and also to show further deceleration.
The new Kindle Fire seems to have missed a Q3 2013 launch
Back in 2012, Amazon.com issued invitations for what ended up being the Kindle Fire HD launch event on the August 23 week. The event itself took place on September 6, and the devices started being delivered on September 14. Amazon.com thus had almost an entire month of sales (with pre-orders from September 6 onwards) to book during Q3 2012.
Fast forward to 2013, and Amazon.com hasn't even started inviting the media for a launch event yet. With invitations during 2012 having been issued 2 weeks before the actual event, it seems likely that any launch event during 2013 will already fall in October. By falling in October, no sales will be recorded in September and thus fall on Q3 2013.
This is not trivial. It's likely that the difference might amount to as much as 2 million units "missing". And with these being at least $199 units, 2 million units come up as $400 million in revenues that "won't be there". Since revenue expectations for the quarter run at $16.76 billion, $0.4 billion is around 2.4% of sales and might be enough to bring the revenue growth rate below 20% year-on-year.
This effect also compounds the revenue slowdown that's being observed in ChannelAdvisor data, since ChannelAdvisor data does not capture it.
Amazon.com does have two factors helping its revenue growth in this quarter. One large, one small:
- The small effect is the launch of GTAV, which exceeded expectations massively and is certain to help Amazon.com's media revenues. GTAV could easily have meant as much as $120 million in revenues for Amazon.com, if we just assign it 10% of its overall sales;
- And the large effect is the fact that Amazon.com is transitioning sales of ebooks from an 3P accounting model to a 1P accounting model. In 3P Amazon.com only accounted for its own take (commission) in its revenues. In 1P it records the full value of the sale. This means that even for unchanged sales, Amazon.com can be recording as much as 3 times the revenue. I wrote a more detailed piece about this effect in my article "Accounting Change Stands To Inflate Amazon's Reported Revenues".
Given the recent ChannelAdvisor data and the likelihood that Amazon.com won't be able to refresh its Kindle Fire line during Q3 2013, whereas during Q2 2012 it did so, it's likely that Amazon.com will miss revenue expectations in Q3 2013.
Indeed, it might even happen that revenue growth will come in below 20% year-on-year, which might work as a psychological barrier for speculators to understand that Amazon.com's growth rates have been plunging quickly without earnings taking off at all.
Obviously at this point Amazon.com and many other stocks are simply bubbles fueled by Bernanke's monetary madness, so it's hard to tell when any of them will reflect reality. But the risk is clearly there as Amazon.com misses growth and earnings expectations quarter after quarter.