Final Estimate For Q1 2014 Revenue Growth

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ChannelAdvisor reported March 2014 "same store sales," with showing better than expected.

The better showing leads me to increase estimates for Q1 2014 revenue growth.

While the new estimates still imply a miss, the miss is much smaller, and there's even the chance will meet consensus revenue growth estimates.

On the other hand, it's still likely that revenue growth guidance for Q2 2014 will be disappointing, both due to the ebook accounting change and due to an move.

ChannelAdvisor has just reported "same-store sales" for March 2014. This is how things looked for (NASDAQ:AMZN):

Amazon - Amazon's March SSS came in at 26.2% compared to February's 23.0%, a strong m/m increase we believe due to the improvement in weather conditions. Note that Amazon had a big PR win with the launch of Amazon Fire TV on April 2. These launches usually 'spill over' into increased e-commerce sales, so we will watch for that in our April data.

This has been one of the most positive reports for in a while. Together with the readings from January and February, this puts the average growth for Q1 2014 at 21.1%, nearly flat with Q4 2013 at 21.3%. had been reporting significant deceleration in every quarter since Q2 2011, so this flatness is noteworthy.

Modelling Q1 2014 revenues

As I've explained, ChannelAdvisor gives us our best guess as to how is doing in terms of revenues. The correlation (R2) between year-on-year growth reported by ChannelAdvisor and what ultimately reports runs near 0.90.

In the last few quarters, this relationship has been disturbed by's change of its ebook accounting. A portion of's ebook revenues stopped being accounted for using the agency model. Previously just booked the commission it got from the sale (around 30% of the sales price). changed this and started accounting for those revenues using the wholesale model, where books 100% of the sales price as revenues. This inflated's overall revenue growth rate and somewhat broke the relationship with ChannelAdvisor data. The effect could be seen in the following chart showing the relationship between reported revenue growth, and ChannelAdvisor "same-store sales" growth for

This chart also shows that in Q4 2013, the effect seems to finally have subsided, which would mean all of the distortion is already in the numbers. The relationship between the growth rates seems to have stabilized at 1.05.

Now, with the just reported ChannelAdvisor numbers for March, what are the implications? We can go about this in two ways:

  • Using the linear correlation from past data, the ChannelAdvisor data implies a Q1 2014 growth rate for as a whole of 18.4%. This however is still somewhat distorted by the ebook accounting change. 18.4% is up from the 17.1% predicted by the same method when we just had data up to February 2014;
  • Using just the Q4 2013 ratio between ChannelAdvisor growth and growth, which might already include all of the ebook accounting change effect, this would imply's revenue growth of 20.1%. 20.1% is up from 17.6% predicted by the same method when we had data up to February 2014.

Both of these predictions compare to consensus revenue growth rate for Q1 2014 of 20.9%. As we see, they both point towards slightly missing revenue estimates. However, the miss is much smaller than what was predicted using data up to February 2014, and indeed, it's close enough that might well meet estimates. In this sense, the March numbers were clearly a positive surprise.

Also importantly, Q1 2014 will be the last quarter where the base quarter for year-on-year comparisons (Q1 2013) doesn't yet include effects from the ebook accounting change. From Q2 2014 onwards, this changes. This means that from Q2 2014 -- without the artificial push from the accounting change -- it will become harder and harder for to show significant revenue growth.

When reports Q1 2014, it will also issue guidance for Q2 2014. This guidance will be the first moment where the base will also have some of the effect of the accounting change, thus rendering it likely that the revenue guidance will disappoint. Also importantly, Q2 2014 will be the first quarter where eliminates free super saving shipments towards 10 European countries:

From 3 April, 2014, FREE Super Saver Delivery will no longer be available for deliveries to Belgium, Denmark, Finland, Gibraltar, Iceland, Luxembourg, Netherlands, Poland, Portugal or Sweden.

This move by Amazon is likely to also have a negative impact on revenue growth, even if it will surely help earnings as it's likely that these countries were showing significant losses in shipping costs.


There are two main conclusions from this article:

  • First, the March ChannelAdvisor data improved's prospects for Q1 2014: While a revenue miss is still possible, it's now less likely;
  • And second, that due to Q2 2013 already having some effect of the ebook accounting change, seems likely to guide Q2 2014 revenue growth below expectations, an effect which will be compounded by having terminated free shipping towards 10 European countries.

Disclosure: I have options positions which stand to gain from AMZN stock falling. I have no positions in any other stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.