Amazon's first quarter results: AWS reliability, Kindle, margin worries on tap

Amazon's first quarter is likely to highlight the increasingly tense tug of war between profits today and investments in long-term projects. Reliability of Amazon Web Services could be a "sideshow."

Amazon's first quarter is likely to highlight the increasingly tense tug of war between profits today and investments in long-term projects.

The e-commerce giant is expected to report first quarter earnings of 60 cents a share on revenue of $9.526 billion. As for the outlook, Wall Street is looking for Amazon earnings of 57 cents a share on revenue of $8.73 billion.

Among the moving parts this quarter: Will Amazon give credits for its Amazon Web Services outage last week? Given that Amazon's infrastructure as a service unit is in the "other" revenue category, it's unlikely that the company will say much about its outage. But there should be a passing comment or two.

Stifel Nicolaus analyst Jordan Rohan said that "comments on the reliability of the Amazon Cloud services business should provide an interesting sideshow." What's the hit from Japan? For Amazon, Japan represents about 10 percent to 12 percent of revenue. The earthquake and tsunami is likely to hurt consumer demand. Jefferies analyst Youssef Squali said he expects a $50 million hit from Japan. That revenue hit is supposed to be offset by a $50 million revenue contribution BuyVip and $35 million from Woot. Both companies were acquired.

Any data on Kindle sales. Squali added that Kindle and e-book sales will contribute about $660 million to revenue. He added that Amazon built more than 4 million for the first quarter. Expenses matter. Analysts will be closely watching Amazon's profit margins. Rohan said:

We trimmed estimates at the end of the quarter due to Japanese exposure and higher expense assumptions, due to content streaming and fuel surcharges. We anticipate another quarter of debate between the obvious market share growth and the near term pressure on margins.

Hints about Amazon's tablet ambitions. The most interesting items about Amazon's strategy are likely to go unsaid. Amazon's plans for its Android store and Cloud Player fall into the category. Morgan Stanley analyst Scott Devitt said:

We believe that Amazon makes strategic decisions to fulfill long-term aspirations. The rollout of the appstore and other digital content / apps likely foreshadow a concerted effort to gain share in the mobile media business. Apple has shown that content sells itself when the user has a practical, well-designed hardware interface. Amazon is in early stages of delivering structure to the Android ecosystem.

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