Amazon Earnings Preview: Can New Projects Boost AMZN Stock?

by James Brumley | January 28, 2014 8:57 am

If the pros are right, when Amazon (AMZN[1]) reports last quarter’s earnings after the close on Thursday, the world’s most prolific online retailer will post a profit of 66 cents per share of AMZN stock.

[2]Of course, Amazon stock owners should also know there’s only about a 50/50 chance of the Amazon earnings figure actually topping estimates, as the e-commerce giant has missed estimates in eight of the past fifteen quarters[3].

On the other hand, the Amazon earnings trend hasn’t been the big story for fans and followers of the company lately. What’s made AMZN stock such an adventure since 2011 is the big spending now aimed at even bigger revenue later.

At what point does all the spending start to pay off? As it turns out, the fourth quarter of last year may well be the turning point for AMZN stock, with analysts looking for the best quarterly profit since the fourth quarter of 2010. The market’s sure to be looking beyond the numbers, however.

The Amazon Earnings Outlook

With the back-story explained, investors will be looking for some specific numbers in the Amazon earnings results posted Thursday afternoon. As was noted above, per-share profits are expected to roll in at 66 cents per share of AMZN stock. That’s a far cry better than the year-ago figure of 21 cents per share. That’s an impressive improvement, though one slightly exaggerated by the fact that Amazon was still spending excessively (even by Amazon standards) in the fourth quarter of 2012.

Still, business is projected to be significantly better. Forecasters say sales should be up 22.5% in the fourth quarter, growing from $21.27 billion per year to an estimated $26.06 billion this time around.

Though a comparison of 2014’s projected earnings to 2013’s bottom line is irrelevant, the top line is currently projected to grow 22.3% this year. While Amazon is usually coy when it comes to forecasts, the market may be able read between the lines and make a judgment call on the company’s capacity to reach that revenue goal of $91.62 billion.

What AMZN Stock Owners Need to Watch

To give credit where it’s due, Amazon is always rolling out new ideas. Some of them are better than others. In fact, some of them are great ideas … but others are terrible.

The entry into the grocery business via AmazonFresh, for instance, is a great idea, while the development of flying delivery drones[4] is a spectacularly bad idea. There are three specific initiatives that AMZN stock investors — current and prospective — will want to pay extra attention to when we finally hear the Amazon earnings report from the fourth quarter.

• Amazon Prime has been around for a while, offering members free shipping as well as access to a decent library of on-demand online video. But, it’s only been in the past few months that the company has made a concerted effort to really go toe-to-toe with the likes[5] of Netflix (NFLX[6]). It will need to do more in 2014, however, if it wants to establish itself as a top-tier name in the digital video world.
• Though it’s unlikely to directly add a penny to the Amazon earnings total, the Kindle is still enormously important — indirectly — to much of Amazon’s overall success. After all, it’s a medium not only for Amazon’s digital video library, but also for e-books. Sales of the tablet were supposed to be weakening, but last quarter’s sales of the handheld device apparently broke records. The question is, how will AMZN follow that up?
• It may be the least exciting aspect of the company to investors in AMZN stock, but Amazon’s cloud storage arm is critical to its longevity. The cloud is an increasingly competitive arena, however, and Amazon has cut its cloud pricing again[7] in order to remain a market leader. Will that price cut ultimately crimp future Amazon earnings totals, or will the e-commerce giant offset weaker cloud margins with greater volume?

And, although it’s only been something of a side project, something else that could become a hot button from the Amazon earnings report or in the earnings conference call is the possibility of an Amazon-branded smartphone[8]. Though the rumors that first surfaced in 2012 never led to an actual product, it’s interesting how the idea never really went away. Such a phone is still on the distant horizon, but it could be a catalytic talking point for AMZN stock.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/01/amazon-earnings-preview-amzn-stock-gives-investors-lots-think/

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