Misses Again -- Key Facts & Analysis

| About:, Inc. (AMZN)
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Amazon Earnings Decline by 58%; Expenses Cited

  • Summary: Inc.'s stock (NASDAQ:AMZN) fell 12% in late trading after the company reported Q2 results. Revenue rose 22% to $2.14 billion, higher than the consensus analysts' estimate of $2.1 billion. But net income was reduced by termination of Amazon's relationship with Toys "R" Us Inc. which directly cost $10 million but also involved higher investment in Amazon's own toy store, and higher spending on technology, Web content and software development for delivery of digital content. Operating expenses rose 34% and content costs rose 58%. Net income of $22 million equated to EPS of $0.05, missing the consensus estimate of $0.07. Guidance: Amazon raised its full year revenue estimate to $10.15-10.65 billion from prior guidance of $9.95-10.5 billion, but lowered its operating income forecast to $310-440 million from $390-520 million.
  • Comment on related stocks/ETFs: Amazon's cut to guidance was severe: the mid-point of its operating income guidance fell to $365 million from $455 million. But almost more concerning was the general sense of uncertainty about the company's long term profit growth in the conference call. Amazon is also investing heavily in Web services, for example. But in answer to a question about when it would be able to generate profits from them, CFO Tom Szkutak said "It is still very, very early for us. We think certainly from a return perspective, certainly we're looking at it over the long term". Another analyst asked how the digital distribution of music and video would impact Amazon's margins, and received this answer: "It's very early and certainly difficult to predict what will happen over time". And when asked about the impact of Google Checkout and eBay's fee increase for fixed price sales, Jeff Bezos flatly refused to answer the question. Yet there's a strong argument to be made that Amazon is the key loser from Google Checkout. Details are in the full conference call transcript, which is a must-read for anyone interested in the Internet or Internet stocks.

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