Amazon's Quarter Fails To Impress

Amazon reported strong third quarter earnings and upped its outlook for the fourth quarter, but it’s unclear whether that’s good enough to keep the e-tailer in that elite club that has been carrying the Nasdaq.

On Tuesday, Amazon reported third quarter net income of $80 million, or 19 cents a share, up from $19 million, or 5 cents a share, a year ago. Revenue for the quarter ended Sept. 30 was up 41 percent from a year ago to $3.26 billion.

The problem: Wall Street was expecting earnings of 18 cents a share in the third quarter and sales of $3.14 billion. Simply put, that’s just not enough upside if you’re going to hang out with the likes of Research in Motion, Apple and Google (also known as Nasdaq’s anointed ones).

The end result: That giant sucking sound you hear afterhours is from Amazon shares. Shares were down to about $91 from a close of $100.82. All that said, Amazon’s quarter was strong for the e-tailer (although I’m still stunned that the company only pockets $80 million in profits in a quarter on $3.26 billion in revenue). Amazon’s operating margins were 3.8 percent worldwide in the third quarter, down from 4 percent in the second quarter and 4.8 percent in the first.

As for the outlook, Amazon projected sales of $5.1 billion to $5.45 billion in the fourth quarter and operating income of $221 million and $291 million. The revenue outlook is stronger than Wall Street expectations calling for fourth quarter sales of $5.15 billion.

For 2007, Amazon projected sales between $14.26 billion to $14.61 billion. That range is better than Wall Street projections of $14.18 billion in sales. Amazon projected 2007 operating income of $605 million and $675 million.

By the numbers:

• Operating cash flow was $1 billion for the trailing 12 months. Free cash flow was $800 million for the same period.
• North American sales were $1.79 billion, up 42 percent from a year ago. International sales were $1.47 billion, up 40 percent from a year ago.
• Media sales (books, DVDs and music) was $2.09 billion, up 36 percent from a year ago. A lot of that was the latest Harry Potter book. Electronics and other merchandise was up 56 percent in the third quarter to $1.08 billion.
• Amazon Web Services has 290,000 developers registered, up from 25,000 in the previous quarter. Amazon’s S3 service has more than 10 billion objects stored.
• Amazon ended the quarter with 15,800 employees, up from 14,400 in the previous quarter.

Comments

[Al Rob:]

Just watched Mad Money. Crammer said "ring the register" on AMZN tomorrow . Also said sell 1/2 of RIMM and 1/2 of AAPL. still looking at 750 price target on GOOG.

Where will AMZN be bid tomorrow?

2007 Oct 23 07:23 PM

[omooc:]

The stock shot up to 100+ immediately following the release of earnings report. Equally sudden, the stock moved back to the 91+ range. Presumably, the lower margin was known before the stock moved up, so stating that the stock moved down on account of unattractive margin cannot, in my view, hold up. The stock's volatility was too much for comfort. For the many who bought in the 100+, would they be forced to sell tomorrow morning, since Cramer already gave the signal to sell the stock. We'll wait and see. omooc

2007 Oct 23 10:30 PM

[calvino:]

Whoa, hold those margins. And how about them projected sales. Helicopter will rain down money on everyone so we can gorge on some more credit and keep the consumer economy going. Why the heck am I talking macro - this is stocks here! Here is to huge revenue increases in fourth quarter, on the back of that vaunted and insatiable american consumer machine.

2007 Oct 24 02:25 AM

[Al Rob:]

AMZN will trade the way AMZN always does... the desks will give it a few days to settle and let the institutions blow out of it. A lot of people will go short based on the valuation. Then, when the large sell orders dry up, they will start running it up and squeezing the shorts. Depending on the order flow they might even do it today.

2007 Oct 24 08:11 AM