Sunday, November 11, 2012

Amazon Earnings Review: Coming Apart at the Seams

Amazon reported QE September 2012 financial results on October 25

Last quarter I said that Amazon's financial results were "depressing", even though CEO Jeff Bezos says the spending is for long-term upside and glory. This quarter was even worse as the downtrend accelerated. The prior quarter was a meager net income of $7 million (on almost $13 billion of sales and an earnings per share of a mere +0.01) and that has evaporated. Now there is a current quarter net loss of -$274 million (on almost $14 billion of sales and a resulting loss per share of -$0.60).

Some of this financial performance destruction was, "The third quarter 2012 includes a loss of $169 million, or $0.37 per diluted share, related to our equity-method share of the losses reported by LivingSocial, primarily attributable to its impairment charge of certain assets, including goodwill". That would result in an Amazon core business loss per share of -$0.23 which is still dismal.

The next quarter, the Holiday QE December 2012, would normally be the annual financial performance peak, first for revenues and then, in theory, for net income and earnings per share. Not so. Management's outlook is $20+ billion in sales for the QE December 2012, but the operating loss is projected to be deeper, dropping to a worst-case scenario operating loss of -$490 million. Hence net income will sink accordingly, yet again.

Sales continue trending upwards and year over year growth has been consistent. Not so with earnings per share. For 7 consecutive quarters, year over year EPS performance has been negative, meaning the prior year's earnings per share was not matched or exceeded. So far, no benefit for the shareholders on the outside. Ouch.

Outlook QE December 2012:
* Net sales are expected to be between $20.25 billion and $22.75 billion, or to grow between 16% and 31% compared with fourth quarter 2011.
* Operating income (loss) is expected to be between $(490) million and $310 million, compared with $260 million in the prior year period.
* This guidance includes approximately $290 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

"Our approach is to work hard to charge less. Sell devices near breakeven and you can pack a lot of sophisticated hardware into a very low price point,” said Jeff Bezos, founder and CEO of “And our approach is working – the $199 Kindle Fire HD is the #1 bestselling product across Amazon worldwide. Incredibly, this is true even as measured by unit sales. The next two bestselling products worldwide are our Kindle Paperwhite and our $69 Kindle. We’re selling more of each of these devices than the #4 bestselling product, book three of the Fifty Shades of Grey series. And we haven’t even started shipping our best tablet – the $299 Kindle Fire HD 8.9” ships November 20.”


Seeking Alpha