Will Amazon see Christmas in July?

Will Amazon see Christmas in July?

Summary: Amazon's second quarter earnings on Tuesday will go a long way to determining whether the company is viewed as a retailer or an e-commerce platform much like eBay.Thus far, the e-commerce platform camp seems to be winning.

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Amazon's second quarter earnings on Tuesday will go a long way to determining whether the company is viewed as a retailer or an e-commerce platform much like eBay.

Thus far, the e-commerce platform camp seems to be winning. Amazon is expected to report second quarter earnings of 15 cents a share on revenue of $2.8 billion.

So what's the big deal between seeing Amazon as a retailer or an e-commerce platform? This chart below tells the tale. That big leap in Amazon shares is when the platform thing bonked investors over the head. It also didn't hurt that Amazon had strong first quarter earnings.

amznchart.png

In a nutshell, Amazon is bringing more third parties onto its platform. And Amazon is picking third party sellers that go beyond the traditional media business. Since Amazon gets a cut of these sales it can deliver better profit margins.

Deutsche Bank analyst Jeetil Patel said his checks indicate that third-party sales resembled the holiday season in the second quarter. Patel also indicats that pro forma earnings could hit about 34 cents a share. Pro forma results exclude charges and other items.

A few takeaways from Patel's report:

  • Amazon benefited when eBay pulled its advertising from Google as search results increasingly pointed to Amazon.
  • Amazon is looking to lure third party merchants that don't focus on media.
  • Harry Potter buzz fueled business for non-Harry Potter goods.
  • Amazon is spending less to get traffic. Patel noted that sales and marketing was 2.4 percent of revenue at Amazon, compared to 3.1 percent of eBay's sales. As an aside Amazon is also spending less on technology and content.

Not all analysts are wildly upbeat about Amazon's second quarter. Bear Stearns analyst Robert Peck acknowledges Amazon is likely to report a strong quarter, but notes that the results are already expected.

Peck also argues that Amazon won't be able to keep its technology spending rate down. "We believe that the reduction in the growth rate of technology and content spending is not sustainable longer-term and that Amazon will be forced to reaccelerate its spending in that category to remain competitive," said Peck.

Another interesting data point from Amazon will be the prognosis of its Web services such as S3 online storage. For now, these ventures don't contribute much to Amazon's financial results, but analysts expect that to change in 2008.

Topic: Amazon

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  • Why are they successful

    Well you can buy books for 1/2 to 1/3 the prices from Amazon. Why pay $60 for a book in the local book store when you can get it for $20?
    voska