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Amazon (NASDAQ:AMZN) reports 2Q12 results on July 26th.

The Street estimates:

  • Revenue: $12.91 billion
  • EPS $0.02 per share
  • 3Q12 revenue guide: $14.17 billion

In Q1, Amazon reported an inline result in which net revenue was $13.2 billion and EPS was $0.78 per share, beating the consensus of $0.39 per share on $12.87 billion in revenue. Most notably, gross margin improved by 114 bps y/y (the highest since 2005) due to sales from mostly third-party vendors.

Heading forward, we could see continued margin improvement as Amazon shifts more into 100% gross margin products, such as Amazon Web Services and Third Party Sales. Recall that under Third Party Sale, revenue is booked based on commission rather than cost of goods sold.

(click images to enlarge)

Management also guided a pretty high capex spend for this upcoming quarter as Amazon ramps up fulfillment centers and data centers. Last quarter, Amazon announced 13 fulfillment centers, of which seven are in the US and six abroad, compared with nine new centers in 1Q11. The 44% ramp up on fulfillment centers is due to strong demand for the retail and 3P products, which are listed under the Fulfillment By Amazon segment.

Best Buy's loss is also Amazon's gain. Best Buy reported Q1 earning for the period ending May 5, and domestic revenue, which include online and in store, increased only at 5.1%. Given the lack of a CEO, a concrete turnaround strategy, and heavy exposure to slow growth categories (e.g., TV, laptops, digital cameras), Best Buy will likely to continue to cede market share to Amazon.

Finally, Amazon's stock price has seen strong performance after share repurchases. Historically, Amazon's stock price returned 82% six months after and 260% one-year after a buyback.

Source: Amazon Q2 Earnings Preview: Third Party Sale And Margin Expansion In Focus