Amazon Pre-Earnings: Can Amazon Outperform This Quarter?

Amazon (NASDAQ:AMZN) is scheduled to report its first quarter results for 2015 on Thursday, April 23. While the management had forecast net sales growth to range between 6% and 16% during Q1 2015, we expect the final results to fall around the upper-end of this guidance range. According to some early indicators, Amazon’s same stores sales outperformed the overall e-commerce growth rate during the first quarter. High demand across the electronics and general merchandise, and Amazon Web Services businesses is likely to drive growth during the first quarter. Notwithstanding this positive outlook, we expect Amazon to face some profitability pressure during the first quarter due to seasonality and heavy investments in diverse areas.

See our complete analysis for Amazon

Profitability Will Be Closely Tracked In The Earnings Report

The lack of profitability is a key concern for Amazon’s investors and, hence, profitability levels will be closely watched during the earnings report. Though the company posted operating margins of -0.1% and -2.6% during the second and third quarters of 2014, respectively, the same was recorded at 2.0% during the fourth quarter. The company’s guidance pegged operating income in the range of -$450 million and +$50 million for Q1 2015 — we think Amazon could post an operating loss during the quarterly results owing to high investments in fulfillment centers, technology infrastructure, geographical expansion, original content, hardware development, etc. This could lead to year-over-year increase in technology and content costs, fulfillment costs, marketing expenses, and general and administrative expenses in the first quarter, in our view.

Electronics And General Merchandise (EGM) And Amazon Web Services Businesses Will Fuel Revenue Growth During The Quarter

We expect strong demand in the electronics and general merchandise category, which accounts for about 70% of Amazon’s overall revenues, to carry Amazon’s earnings during the first quarter. The segment saw strong revenue growth of 28% and 19% across North America and international region respectively during 2014. According to Channel Advisor, Amazon’s same stores sales increase was recorded at 27%, 22.7% and 24.6% during January, February, and March, respectively. This came in above the e-commerce growth rate of 15% during the same period. ^[1]

We also expect high growth within the Other category during Q1 2015, driven by rapidly rising demand in the Amazon Web Services (AWS) business. Usage growth (in terms of volume) within the AWS was seen at around 90% during the past few quarters. We expect this trend to persist in the coming future as the market opportunity is immense within the cloud services business. It will be interesting to see the financials within the AWS business, since this will be the first quarter when the company will report these results separately.

Media And International Sales Could Underperform

We will closely track sales growth within the international and media segments, respectively, during the first quarter, as demand has recently slackened in these businesses. The top-line increase in the media segment came down from 10% and 8% in Q1 and Q2 2014, respectively, to 4% during the last two quarters. Similarly, the international segment reported a slowdown from 18% and 14% (currency-neutral) increase during the first two quarters of 2014 to 13% and 12% growth during Q3 and Q4, respectively. Since Amazon is investing heavily in these segments, a prolonged slowdown could drag down the company’s margins, in our view.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. March 2015 SSS ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Search, CSE and other e-commerce channels, Channel Advisor, April 13, 2015 [↩]