Amazon.com (AMZN) has been pursuing growth at all costs. Its recently announced Q1 2008 results are a testament to that drive. It reported the quarter’s revenue at $4.13 billion, meeting analyst expectations and reporting a 37% increase over the previous year. Its earnings for the quarter at $0.34 were marginally higher than the market’s expectation of $0.32, and are 30% higher than previous year earnings.
Media revenue increased by 28% over the previous year to $2.54 billion while Electronics and other General Merchandise [EGM] revenue increased by 56% over the period to $1.48 billion.
Region-wise, North America contributed $2.13 billion recording a 31% growth. The rest of the world revenues grew by 44% to $2.01 billion.
Going forward, for Q2, it expects net sales of between $3.875-$4.075 billion, which is a growth of 34%-41% with GAAP operating income of $0.12-$0.16 billion. For the year 2008, it expects net sales between $19.1-$20 billion, a growth of 29%-35% with GAAP operating income of $0.74-$0.94 billion.
I have repeatedly mentioned that Amazon needs to expand its margins. The management however, continues to follow the low-price strategy to drive up sales. It attributes its sales growth for the quarter to “low prices and millions of in-stock items available for immediate shipment”. Its operating margin continues at 5.8% for the quarter, despite addition of new categories even in the international segment.
Amazon’s competitor, eBay (EBAY) recently announced its results, and unlike Amazon, eBay continues to give higher margins.
The management does not give a more detailed breakdown of revenue contributors. So, Kindle revenues are still not available to analysts. It has increased the content to 115,000 titles from the 90,000 titles at launch, which is indicative of at least some commitment.
The most interesting move I saw this quarter from Amazon, however, is the news that it will only sell print-on-demand books printed by its own POD provider, Booksurge. In fact, the book publishing business is ready for a complete overhaul, and who is better positioned than Amazon to pull this off? With Booksurge, Amazon is offering 35% royalties to authors, promotion opportunities on Amazon (e.g. cobranding with best-sellers for $1000 a month), etc.
When you contrast this with the 10-15% royalty that major publishers offer their authors, and virtually no marketing (except in the case of a few titles), Amazon is starting to address the two most important issues in the book industry. I can’t wait to see what Amazon would do to turn this around. The vertical integration basically takes out all intermediaries except the Author (35%) and Amazon (65%), and can become a compelling option for 90% of the authors.
Amazon’s stock reported an increase of 1.8% during the day on Wednesday, but in the after hours session, it fell by 4.8% to close of $77.10. Yesterday, it was trading in the $77-79 range.
You can read more on my comparison of Amazon with eBay in the following articles:
Here is the most recent comparison chart of the two:
