Amazon Earnings Preview: Best Secular Growth Story In Retail, But...

Oct. 23, 2012 12:00 PM, Inc. (AMZN)12 Comments
Brian Gilmartin, CFA profile picture
Brian Gilmartin, CFA

Amazon (NASDAQ:AMZN), the internet retail giant, reports their 3rd quarter, 2012 financial results after the bell Thursday night, October 25th. Analyst consensus is expecting a loss of $0.08 per share on $13.93 billion of revenues for a year-over-year (y/y) drop in earnings per share (from $0.14 a year earlier), but 28% y/y growth in revenues.

Amazon has made it a point to crush earnings the last two years by deliberately increasing "fulfillment" and SG&A (sales, general and administrative expenses) as they have escalated the build-out of regional distribution centers.

A reader might ask why hasn't the stock gotten just drilled as annual earnings per share will fall from $1.37 in 2011 to an estimated $0.69 in 2012, which is down from $2.53 in 2010 ?

The answer I believe is that sophisticated investors look through temporary constraints on earnings and focus on AMZN's revenue growth.

2014 - 26% (estimated)

2013 - 28% (estimated)

2012 - 30% (estimated w 2 quarters left to report)

2011 - 41%

2010 - 40%

Revenue growth is the key for AMZN, as the internet retailer is considered the best secular growth story in retail. With the September '12 retail sales reported in mid-October, it was noted that "non-store" retail, which includes internet sales, is now 9.4% of total retail sales.

What fascinates me is that with annual revenues of $63 billion, Amazon is still just 12 - 13% of WalMart's annual sales of $500 billion, and Walmart (WMT) is thought to represent about 10% of total annual retail sale in the US. For those who can quickly do the math, that means Amazon is just 1% - 2% of total retail sales in the US, and thus has plenty of growth ahead of it.

The other part of that story is that while WMT can

This article was written by

Brian Gilmartin, CFA profile picture
Brian Gilmartin, is a portfolio manager at Trinity Asset Management, a firm he founded in May, 1995, catering to individual investors and institutions that werent getting the attention and service deserved, from larger firms. Brian started in the business as a fixed-income / credit analyst, with a Chicago broker-dealer, and then worked at Stein Roe & Farnham in Chicago, from 1992 - 1995, before striking out on his own and managing equity and balanced accounts for clients. Brian has a BSBA (Finance) from Xavier University, Cincinnati, Ohio, (1982) and an MBA (Finance) from Loyola University, Chicago, January, 1985. The CFA was awarded in 1994. Brian has been fortunate enough to write for the from 2000 to 2012, and then the WallStreet AllStars from August 2011, to Spring, 2012. Brian also wrote for, and has been quoted in numerous publications including the Wall Street Journal.

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