For the current quarter, we expect Amazon to report strong sales growth on the back of a blockbuster holiday season. We believe that the company will continue to dominate the U.S. online retail market in 2013. In the earnings call, we will be closely watching how Amazon plans its return to profitability. We will also look for any announcements regarding the performance of the Kindle device range which was launched in early September and may have won some market share from Apple’s iPad during the holiday season. 
Amazon competes primarily with leading retailer Wal-Mart (NYSE:WMT), consumer electronics giant Best Buy (NYSE:BBY) and eBay‘s (NASDAQ:EBAY) Marketplaces, in the electronics and general merchandise market, Apple (NASDAQ:AAPL) in the tablet device market and Netflix (NASDAQ:NFLX) and Barnes and Noble (NYSE:BKS) in the content market.
Watch For The Impact Of Sales Tax
There is a growing concern that Amazon’s role as a sales tax collector, a responsibility it was exempted from initially, has negatively impacted the sales growth during the holiday season.  North America contributes to about 55% of Amazon’s total sales and any impact could be significant on company-wide results.
The full impact of such a roll out in California, the most populous state where the taxes were first introduced in mid-September, will become apparent in the Q4 results and could set the trend for a countrywide roll out.   This quarter’s results will be a good indication of the impact that sales taxes could have on future sales.
The Threat From Price Matching And Best Buy’s Recovery
Best Buy reported better than expected results for the holiday season, which resulted in its share prices soaring and raised doubts about Amazon being able to live up to the lofty holiday sales expectations.  
Target also poses a threat with its price matching initiatives during the holiday season.   We will look for the impact, if any, of Best Buy’s resurgence and price matching initiatives on Amazon’s sales. Offline retailer, Target now plans to match online prices all year round, and we will look for Amazon’s plan to mitigate the threat arising from such initiatives. 
Overhead Threatens Margins
Amazon is in the process of setting up several warehouses and the infrastructure for charging sales taxes in various states. We will look for the impact of higher administration costs associated with these activities.
Amazon is expected to enter the advertising market on a large scale in 2013, which could help it improve margins if successful. It is better placed to track the shopping habits of users than either Google or Facebook, and the data from tracking this could be invaluable to advertisers who can then better target their customers. We discussed how Amazon Can Improve Margins By Seizing Its Advertising Opportunity, and will look for hints or plans by the company on entering the domain.
We have a $218 estimate for Amazon, which is 20% below the current market price.
- Tablet Market Update: December 2012, Chitika, December 2012 [↩]
- Amazon holiday results to show sales tax impact, Reuters, January 2013 [↩]
- U.S. Interactive Population Map, U.S. Census Bureau, 2010 [↩]
- Amazon, other Web retailers start collecting California sales tax, LA Times, September 2012 [↩]
- Best Buy Announces Holiday Revenue Results, Best Buy, January 2013 [↩]
- Amazon Holiday Sales Show Buyers Enjoy Tablets, Movie Lamp, The Wall Street Journal, December 2012 [↩]
- Target Unveils New Price Match, Exclusive Gifts and Digital Offerings for the Holiday Season, Target, October 2012 [↩]
- Best Buy’s Showrooming Counterattack: We’ll Match Amazon Prices, Time, October 2012 [↩]
- Target to Match Rivals’ Online Prices Year-Round, BloombergBusinessweek, January 2013 [↩]