Analysts Look for Amazon Sales Growth To Balance Q1 Red Ink

Although Amazon.com.com has denied it will post back-to-back profitable quarters, analysts, investors and other e-tailers will be watching closely for signs of growth when the e-tailer reports first-quarter earnings Tuesday.

Moreover, they will want to determine the impact of the company’s free shipping offer on sales.

Amazon has made no secret of the fact that it expects to slip back into the red in its first quarter, typically a letdown period for retailers. The company said it will report somewhere between breakeven and a US$16 million loss.

“At this point, Amazon is walking a fine line, trying to hold onto the significant gains they’ve made on the profitability front while rejuvenating the top line,” Morningstar.com analyst David Kathman told the E-Commerce Times. “A relatively strong revenue number seems likely this quarter.”

See Beyond the Red

There may be an outside chance that Amazon could turn in a pro forma operating profit, excluding all outside charges.

“It’s at least a possibility,” Kathman said. “I think they’re at least likely to come close.”

Last year, Amazon lost $49 million on an operating basis.

The Seattle, Washington-based e-tailer is scheduled to report after market close Tuesday. Analysts polled by Thomson Financial/First Call said they expect the company will record earnings of $805 million and a loss of 9 cents per share. Both figures would represent improvements over last year.

Shipping News

Analysts and other e-tailers also will be poring over Amazon’s earnings to see if they shed any light on the effect of the company’s free shipping offer on sales and profit margins.

Amazon announced in January that it would make permanent a holiday deal to waive shipping fees on most purchases of more than $99. Since then, competitor Buy.com has instituted a similar deal, and analysts have said Amazon’s dominance likely will force other online sellers to follow suit over time.

An Amazon executive said in a conference call in early March that the shipping deal has produced “pleasant” results but rebuffed several questions seeking specific numbers.

Searching for Growth

Kathman said he will be looking for top-line growth in key categories, such as books, music and videos, that might stem from the shipping deal.

“Amazon’s core U.S. business had basically stopped growing for most of 2001 as the company got costs under control and moved toward profitability,” Kathman said, noting that growth began to resurface in the fourth quarter and played a role in the e-tailer’s profits.

“I think it will take a few quarters to really judge the long-term impact of the $99 free shipping offer, but we’ll at least be able to get some preliminary indications this quarter,” he added.

No Honeymoon

Though Amazon finally broke the profit barrier in the fourth quarter, the e-tailer has not enjoyed much of a honeymoon with analysts.

First, the company’s cash position was called into question when it was revealed that cash and securities had been pledged to secure property leases.

Then, in mid-March, the company’s stock briefly took a dive after word hit the street that Toys “R” Us was looking to restructure the terms of its deal with Amazon. Analysts worried that negotiations would spill over into the e-tailer’s other third-party dealings, which are a key driver of Amazon’s bottom line.

The first quarter also saw longtime Amazon chief financial officer Warren Jenson announce his departure. Jenson plans to remain with the company while a successor is sought.

“As for the outlook, I don’t expect them to get too specific, though I’m sure they’ll reiterate their goal of positive operating cash flow for the year,” Kathman said. “I don’t expect any major changes.”