Amazon.com, Inc. (NASDAQ: AMZN) will release its fourth quarter financial results on Jan.30. The company will hold a conference call to discuss the operating performance at 2:00 p.m. PT/5:00 p.m. ET on the same day.
Wall Street expects Amazon to report earnings of 66 cents a share, according to analysts polled by Thomson Reuters. The consensus estimate implies more than three fold increase from the 21 cents earned last year.
Amazon's results have managed to top Street view only once in the past four quarters while missing them by a wide margin on two occasions and meeting it in the third quarter. The consensus estimate dropped 3 cents in the last three months while two analysts have raised their profit view for the quarter in the past 30 days.
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Quarterly revenue is expected to rise 22.60 percent to $26.07 billion from $21.27 billion in the same quarter last year. Amazon sees fourth quarter net sales between $23.5 billion and $26.5 billion, or to grow between 10 and 25 percent from the fourth quarter 2012. The market look at the contributions of North America and International markets.
For the full year, Amazon is expected to earn 73 cents a share on revenue of $74.94 billion. Last year, the online, retail giant reported a loss of 9 cents a share and generated revenue of $61.09 billion.
Amazon's fourth quarter results could be boosted heavily by a strong sales during the holiday season, driven by Kindle shipments and video game sales. This year, there is a difference in Kindle shipping timing, with both the new 7" and 8.9" versions pushed into the fourth quarter this year. This effectively shifts the recognition of new Kindle Fire HDX sales fully into the fourth quarter.
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UBS analyst Eric Sheridan notes that the updated version of the Kindle Paperwhite eReader sales will benefit from last year's stock-out issues that delayed a portion of shipments into the first quarter 2013.
In addition, high levels of Amazon promotional support and encouraging data points as supportive of strong Kindle Fire HDX sales in the fourth quarter.
As expected, video game console and game sales also appeared to be winners over the holiday shopping season, and were specifically called out as Black Friday top sellers at Walmart (by the company) and Target (by InfoScout).
Sheridan believes that video game related sales make up anywhere from 10 to 15 percent of Amazon's Media segment and this segment represents about one third of total company sales.
The quarter also saw an uptick in Amazon prime membership. Amazon reported the addition of greater than one million new Prime members during the third week of December alone, noting that total Prime member is now in the "tens of millions". For context, Amazon had approximately 234 million active customers as of the end of the third quarter 2013.
Amazon Prime membership sign up were coming in at such a rapid pace that the company actually had to limit customer sign-ups during peak periods.
Sheridan said a likely contributor to the increase in new members was Amazon's recent (October 2013) free shipping threshold change – increasing the minimum qualifying order value from $25 to $35.
Amazon noted that on Cyber Monday, the peak day for the 2013 holiday season, the company received more than 36.8 million customer orders. This represents a 39 percent increase over last year's peak day (26.5 million units on Cyber Monday, 2012).
Meanwhile, increased fee revenues from 3P sellers should be supportive of gross margin expansion. Investors would be looking for paid unit growth trends, which is a key metric given Amazon's increasing 3P mix and its impact on both reported revenue growth and gross profit margins.
Sheridan noted that the fourth quarter 2013 may have seen a greater mix of 3P units given outside sellers could promote on holiday pages for the first time this year. To that point, the company noted that Cyber Monday 3P units were up 50 percent in 2013. This implies an increase of close to 300bps in 3P mix on Cyber Monday.
The Street will expect updates on international Kindle e-book developments, macro recovery in key European markets and traction in its Amazon Web Services business. They may also focus on any comments over recent rumors of additional hardware launches, such as Kindle smartphone and video game consoles.
Amazon is giving a stiff competition to Netflix, Inc. (NASDAQ:NFLX) on the content front. Prime Instant Video selection increased from 33,000 to more than 40,000 movies and TV episodes in 2013. Amazon Instant Video now includes more than 150,000 movies and TV episodes.
A few additional items that may be brought up on the call or mentioned in some form include early progress related to the company's global expansion of the Kindle Appstore; early traction with 3P sellers in India; update around China strategy (Kindle, partnerships); and the potential pace of Amazon Fresh market expansion, including the recently announced Pantry initiative.
Amazon is sacrificing near-term profitability to drive long-term growth as it is investing heavily in Kindle tablets, TV content, Video library and AWS. These heavy investments are weighing on gross margins resulting in losses. Amazon expects third-quarter operating results between a loss of $500 million and a profit of $500 million, compared to $405 million a year-ago.
For the third quarter, the Seattle, Washington-based company reported a net loss of $41 million, or 9 cents a share, compared with a net loss of $274 million, or 60 cents a share, in the third quarter 2012. Net sales increased 24 percent to $17.09 billion in the third quarter.
Amazon has traded in a mixed manner following its last two fourth quarter earnings announcements, increasing 5 percent and decreasing 8 percent, respectively. That said, over a five year span, the average price change post fourth quarter results is a 1.4 percent gain.
Shares of AMZN have gained 19 percent since the last quarterly report and have climbed 52 percent in the last year. They have traded between $245.75 and $408.06 during the past 52-weeks.
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