Amazon Surges in Q1 but Shares Languish

Amazon has posted Q1 earnings of US$143 million, or 34 cents a share, and revenue of $4.13 billion, handily beating analyst predictions of 32 cents a share on revenue of $4.08 billion. These figures reflect the e-commerce giant’s continuing sharp upward trajectory, with earnings rising 37 percent compared with the same quarter a year ago.

There is little sign this growth will falter; indeed, Amazon has raised revenue guidance for the next quarter and the rest of the year — again, topping analyst expectations.

For Q2, it expects net sales of between $3.875 billion and $4.075 billion, or growth of 34 percent to 41 percent compared with the second quarter of 2007. For 2008, Amazon expects net sales of between $19.1 billion and $20 billion, or growth of 29 percent to 35 percent compared with 2007.

Lower Shares

Despite the upbeat earnings report, Amazon’s shares were set to open sharply lower Thursday morning. “Thirty minutes before the opening bell on Wall Street, the stock was trading at $77.58 a share, down from Wednesday’s close of $81.00,” Fred Ruffy, an independent stock market analyst, told the E-Commerce Times. It’s shares were trading at $78.00 at press time.

Amazon’s stock has, in fact, been declining over the course of Q1 due to larger concerns that the U.S. economy and higher energy prices would affect online retail sales. The details of the latest earnings report suggests that Amazon is weathering the storm fairly well, Ruffy said.

“However, investors seem more focused on the profit margins than the revenue numbers,” he commented.

“Citigroup analysts, for example, said that gross margins in the first quarter were mixed, and the forecast indicates that margins might not improve this year. In short, while the overall report was good, it seems that the stock is being sold on concerns about profit margins going forward,” Ruffy concluded.

Strong Fundamentals

Still, Amazon’s fundamentals are very sound, Motley Fool Senior Analyst Rick Munarriz told the E-Commerce Times.

“The company is still growing — maybe not as fast as it did last year, but there are only so many Harry Potters you can sell,” he said.

In fact, some macroeconomic trends — such as the high price of gas — favor online retail generally and Amazon specifically right now, noted Munarriz. Saving on sales taxes is another incentive for many consumers to shop online instead of at the local mall.

Global sales are also supporting Amazon’s revenues. The company’s UK, German, Japanese, French and Chinese sites brought in $2.01 billion, up 44 percent from the first quarter of 2007. Their take accounted for 49 percent of worldwide net sales compared with 46 percent a year ago. Excluding the year-over-year changes in foreign exchange rates throughout the quarter, international sales grew 31 percent.

Diversification Strategy

Amazon’s diversification business strategy is perhaps the greatest driver behind its success, Munarriz said. The company positioned itself long ago to be more than just a bookseller. Sales of consumer electronics gave a huge oomph to its Q1 earnings report.

Worldwide electronics and other general merchandise sales grew 56 percent to $1.48 billion in Q1 2008, compared with $0.95 billion in Q1 2007, and increased to 36 percent of worldwide net sales compared with 31 percent.

Worldwide media sales, by contrast, grew 28 percent to $2.54 billion in first quarter 2008, compared with $1.99 billion in first quarter 2007. This category will bring in even further profits as Amazon continues to tinker with its content and services digital distribution strategies.

For instance, its electronic book platform, Kindle, has more than 115,000 titles now available, up from 90,000 at launch. During the quarter, Amazon Web Services also gave developers more tools to build applications in the cloud: It launched Elastic IP addresses and rolled out the means to establish compute instances in multiple Availability Zones. Over 370,000 developers have registered to use AWS, up more than 35,000 from last quarter.