Q4 Preview: Declining Margins, International Slump May Hurt Amazon (AMZN); Analysts Mixed

Amazon.com (Nasdaq: AMZN) shares have traded mostly lower Tuesday heading into its fourth-quarter earnings report, expected out after the market close this afternoon.

The Street currently expects earnings of 19 cents per share on revenue of $18.21 billion. Should Amazon meet estimates, earnings would be down 79 percent from the 91 cents per share reported in the same period last year.

Shares moved 20 percent lower to $17.10 in the quarter, and are up 11 percent since. Over the last 52-weeks, shares of Amazon have traded within a range of $160.59 to $246.71.

Investors and potential investors might take a look at rival eBay's (Nasdaq: EBAY) report, which showed a beat on the top and bottom lines last quarter, though much of the strength came from its PayPal payment unit. Without its Payments segment, eBay still realized at 16 percent increase in its Marketplace revs for the quarter. Notably, operating margin at eBay also compressed, something Amazon can't afford to do with its paper thin margins.

Data from Bloomberg shows 24 analysts have a Buy on Amazon, 15 maintain a Hold, and one suggests to Sell. The price target average is $235 (which suggests 22 percent upside from where the stock is currently trading), with a low of $190 and high of $271.

Analyst Comments

• Goldman Sachs sees earnings of 20 cents per share and revenue of $18.62 billion, with a FX headwind of about $100 million.
  
  Goldman does see potential for downside on results amid greater deceleration in International sales growth and FX pressure on the stronger U.S. dollar. The firm commented, "[w]e note that our view is despite our higher than-consensus Kindle and Kindle Fire unit shipments, which we believe will help drive North American sales in the quarter."
  
  For the first quarter of 2012, Goldman sees management guiding to top-line growth of 28 percent to 38 percent, leading to revenue of $12.6 billion to $13.59 billion.
  
  
• Deutsche Bank is more bullish, seeing upside to its expectations for pro-forma EPS of 42 cents and revs of $17.98 billion. Unit growth is being modeled at 43 percent, and Kindle Fire sales will help the top line, while operating margins might be in the 1 percent to 2 percent range.
  
  Deutsche also said, "Given the robust growth, we would not be surprised to see the company continue to build out additional fulfillment centers (FCs) to support growth, especially to move toward same-day delivery in states like CA, NY."
  
  
• BGC Partners is looking for earnings of 5 cents and revs of $17.9 billion. The firm is modeling for 4.5 million Kindle units sold in the quarter. BGC maintains a Sell rating.
  
  The firm sees, "North America net sales of $9.8B (+35.9% YoY) in the December quarter, which form 54.5% of revenue; International net sales of $8.1B (+42.6% YoY) in the December quarter, which form 45.5% of revenue; Media revenue is estimated at $6.8B (+31.2%, 38.2% of rev) and EGM at $10.6B (+43.8%, 59.1% of rev)."
  
  BGC points to Amazon's declining operating margins over the last four quarters, saying the company has the lowest operating margins and highest valuation in its tech company coverage environment.
  
  Looking ahead, BGC sees tougher comps in 2012 given positive e-commerce trends in 2011: "Given its high price-earnings multiple, which at 183x our 2011 estimate is over five times that of any other company in our coverage (which has a median multiple of 15x 2011 earnings), if investors stop awarding Amazon a premium, the company could face lengthy downward or sideways share price action."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Amazon's past performance at Streetinsider's Amazon's Income Statement.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Walmart (WMT) PT Lowered to $130 at UBS on Investment Narrative's Competing Dynamics
• Advance Auto Parts (AAP) PT Lowered to $43 at Truist Securities
• BofA maintains underperform ratings on six BDC stocks