Amazon Losing Steam Before Q4 Earnings

by Tom Taulli | January 29, 2013 10:56 am

By many accounts, online retail giant Amazon (NASDAQ:AMZN[1]) is just a few hours away from dazzling us with its fourth-quarter earnings announcement. Though you wouldn’t have guessed it by its stock’s pre-report action.

Since Monday, AMZN shares are off more than 5% — a potential sign of worry, sure, though also an understandable let-off of steam following a two-month run of more than 20%.

There could be a little anxiety in the air, considering Amazon has posted two consecutive disappointing earnings reports already. However, Q4 is traditionally the most important — and the Street thinks the company will provide us with blowout numbers, their optimism fueled by the strong results of eBay (NASDAQ:EBAY[2]) and others.

The consensus for Amazon is for revenues to improve 28% to $22.28 billion, with earnings receding 24% to 29 cents per share. The lower profitability, while discouraging, is a necessary evil as Amazon continues to invest heavily in infrastructure, Kindle Fire tablets, media business and web services. They’re growth drivers … but they aren’t cheap.

That might not be so bad — investors frequently shy away from Amazon’s results, anyway, instead fixating on the company’s growth prospects. However, AMZN might not have great news on that end, either. The company recently had to start collecting sales taxes in California, and is slated to add Virginia, Nevada and other states in the next couple years. Also, rivals like Best Buy (NYSE:BBY[3]) and Target (NYSE:TGT[4]) have introduced price-matching programs, which could cut into some of Amazon’s low-cost edge.

Considering the past two days of nervous selling, it might not take much to spook investors. Amazon might need a pretty complete report to fend off any additional bears.

Tom Taulli runs the InvestorPlace blog IPO Playbook[5], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook[6]” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders[7].” Follow him on Twitter at @ttaulli[8]. As of this writing, he did not hold a position in any of the aforementioned securities.

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