For online retailers, site traffic is crucial for success. Page hits are just the beginning to building a strong customer base and it is based on the site statistics for Amazon (AMZN) that I am bullish on the stock going into earnings. This stock was punished with a 20% decrease from its November highs as margins got squeezed when the company announced it would chase after Apple in the tablet race. The upcoming Q4 earnings, due out after the bell today, may not be as ugly as some may anticipate, due to the increased spending through the online retailer this holiday spending. According to Gallup polls in December, Holiday spending was projected to increase 10% over 2010 and online retail volume spiked to an all-time high with sales totaling above $35 Billion, an increase of over 15% Y/Y.
Amazon was the main beneficiary to the increased business. Site traffic data from Alexa.com shows that Amazon jumped 3 places during December 2011 versus December 2010, ranking 9th and 12th among all within the Alexa domain. While site ranking may be arbitrary, the more detailed results are convincing. The bounce %, which indicates the percentage of site visitors who only view one page within the Amazon domain and then leave, decreased year over year from around 27% in 2010 to approximately 20% in 2011. This shows that the company did a better job at capturing the audience once they made the initial visit. Further more, the average time spent on the site increased almost 30% from the 2010 highs, going from about 10.5 minutes per visitor to almost 15 minutes per visitor. More time on the site means users may have spent more thanks to the company's ability to up sell items and make effective recommendations to customers.
Finally, the number of visitors Amazon obtained through search engine searches decreased significantly from about 18% in December 2010 to around 9% in 2011. Why is this a good sign? With increased traffic and decreased visits coming from search engines, this shows customers were going directly to Amazon by entering the name into their browser. This is a perfect example of brand loyalty that is an encouraging sign for Amazon.
It is based on these site statistics that I am bullish on AMZN and would recommend some sort of hedged position to take advantage of the upside potential. Negative news with regards to the thin margins is already priced in thanks to the negative reaction last quarter. I believe the company will begin to see the benefits of having an app store from which users can buy apps for their Kindle and other devices, and that market sentiment towards the stock is overly bearish.