Wall Street Expects Strong Q4 For Amazon.com, Inc. (NASDAQ: AMZN) –Earnings on January 27
Tuesday, January 25, 2011 2:24 PM

Amazon.com, Inc. (NASDAQ: AMZN) will report its fourth quarter earnings on January 27, 2010. In the last three quarters of FY 2010, Amazon's reported EPS exceeded analysts' consensus estimates for quarters ended March 2010 and September 2010, by margins of 8.20 percent and 6.30 percent, respectively. For the quarter ended June 2010, Amazon's EPS missed analysts' estimates by margin of 16.70 percent.

Amazon.com, Inc. offers services to consumers, sellers, and developers through its retail websites. It also manufactures and sells the Kindle e-reader. The company offers programs that enable sellers to sell their products on its websites and their own branded websites. Amazon.com serves developers through Amazon Web Services, which provides access to technology infrastructure that developers can use to enable any type of business. In addition, the company generates revenue through co-branded credit card agreements and other marketing and promotional services, such as online advertising. Amazon.com has organized its operations into two principal segments: North America and International.

On January 20, 2011, Amazon has reached an agreement to acquire LOVEFiLM International Limited, by acquiring its remaining shares. LOVEFiLM is a leading European subscription entertainment service which combines the benefits of online DVD and games rental-by-post as well as streaming films and TV shows instantly over the internet to PCs, internet enabled TVs and Playstation®3. LOVEFiLM operates in the UK, Germany, Sweden, Norway and Denmark.

Q3 FY 2010 earnings rose by 16 percent, beats analysts' estimates

For the third quarter FY 2010, Amazon.com reported net sales of $7.56 billion, up 29 percent compared with $5.45 billion in third quarter of FY 2009. During the third quarter, operating cash flow increased 16 percent to $2.62 billion for the trailing twelve months, compared with $2.25 billion for the trailing twelve months ended September 30, 2009. Net income increased 16 percent to $231 million in the third quarter, or $0.51 per diluted share, compared with net income of $199 million, or $0.45 per diluted share, in the third quarter of 2009.

Amazon.com Inc.'s Q4 FY 2010 guidance

For the fourth quarter, Amazon expects net sales to be between $12 billion and $13.3 billion, or to grow between 26 percent and 40 percent compared with fourth quarter 2009. Operating income is expected to be between $360 million and $560 million, or between 24 percent decline and 18 percent growth compared with fourth quarter 2009.

In the online retail industry, Amazon.com competes with Barnes & Nobles Inc. (NYSE: BKS) and eBay Inc. (NASDAQ: EBAY). In the last one year, Barnes & Nobles has reported a loss of $0.51 per share on revenues of $6.80 billion. eBay Inc. has reported earnings of $1.96 per share on revenues of $9.03 billion. On the other hand, Amazon.com has reported earnings of $2.47, on revenues of $30.78 billion, coming on top of its competitors.

Amazon.com has a P/E ratio of 73.70, compared to industry's average P/E of 20.73, which is acceptable for Amazon.com, as the company has been growing rapidly and still has tremendous potential to grow. The P/S sales ratio is at 2.65, compared to industry's average of 0.63. The quarterly revenue growth for Amazon.com is 38.70 percent, compared to industry's average quarterly revenue growth of 9.20 percent.

Analysts' estimates matches Amazon's earnings guidance

For the fourth quarter ending December 31, 2010, analysts' EPS estimates range from a low of $0.73 to a high of $1.03 per share, compared to the consensus estimate of $0.88 or $0.85 per share earned for year ago same quarter. Analysts' revenue estimates for the fourth quarter range from a low of $12.36 billion to a high of $13.31 billion, compared to a consensus estimate of $12.98 billion or $9.52 billion reported in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has raised the EPS to current estimate of $0.88 per share, from $0.87 estimated 7 days ago.

Amazon did not repurchase any of its common stock

The company did not repurchase any of its common stock in FY 2009. In January 2010, Amazon.com Inc.'s board of directors authorized a program to repurchase up to $2 billion of the company's common stock which replaces the board's prior authorization of $1 billion repurchase program. The company have never declared or paid cash dividends on its common stock since the initial public offering in 1997.

In the last 52 weeks, Amazon's stock has been trading in the range of $105.80 and $191.60. In the last one year, the company's stock has gained 45 percent in value to settle at $181.96 on January 20, 2011. Based on the EPS estimates and key statistics of the company, I see a one year target price of $188.



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