Amazon misses on Q3 revenue, Q4 outlook; blames LivingSocial

Wall Street was expecting Amazon to report a third quarter loss of 8 cents a share on revenue of $13.9 billion. That was too optimistic.
Written by Rachel King, Contributor

Following a mixed second quarter, analysts didn't seem to expect much of a comeback this quarter from Amazon. Based on today's results, that will likely have to wait for the fourth quarter.

The online retail giant reported a net loss of $274 million, or 60 cents a share (statement) for the third quarter of 2012. Revenue was $13.81 billion.
Wall Street was expecting Amazon to report a third quarter loss of 8 cents a share on revenue of $13.9 billion.


Amazon executives were quick to point the blame toward losses within the LivingSocial unit:

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.

In an attempt to put a positive spin on the quarter, CEO Jeff Bezos turned the focus back to the Kindle in prepared remarks:

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. 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.

Even ahead of the earnings release on Thursday after the bell, analysts were already shaking their heads -- with good reason.

For example, at the end of the second quarter, Amazon was projecting an operating loss for the third quarter around $350 million. But Wall Street was looking for an operating profit of $164 million.

Barclays analysts wrote in a memo before the earnings release that it was lowering third and fourth quarter estimates because of slower revenue growth in August and September. Yet they still remain hopeful thanks to the unveiling of the new Kindle products in September along with the upcoming holiday shopping season.

While the third-party data indicates modest deceleration in 3Q, Street consensus is looking for an acceleration in 4Q revenue growth, not to mention a significant step-up in operating margins. We do acknowledge 4Q12 revenue could be helped by: (1) robust Kindle Paperwhite and Kindle Fire HD sales; (2) continued growth in Amazon Web Services and incremental 3rd-party sales; and (3) upside in recognized revenue from a recent eBook settlement. However, Amazon’s tendency is to guide conservatively and thus we may not actually see upside confirmation on holiday growth until AMZN’s 4Q12 report in January 2013.

Piper Jaffray analysts were even more optimistic for Amazon, going so far as to assert that Amazon will do better "given its roadmap to dominate global eCommerce over the next decade."

Historical trends suggest if Amazon reports $13.9B, it would guide 4% below the Street. Details: Over the last five years, Amazon's December quarter has been up 67% over the September quarter. If Amazon reports revenue of $13.9B, this would indicate Amazon would report actual December revenue of $23.2B vs. the Street's $22.8B. However, over this same period, Amazon has on average guided December to be up 58% from the September quarter, which would indicate a guidance midpoint of $22.0B (vs. Street of $22.8B). Excluding 2011 from the average (due to Kindle Fire comps), would yield actual revenue of $23.5B and a guidance midpoint of $21.9B.

For the outlook, Amazon is predicting a revenue of $20.25 billion to $22.75 billion at the end of Q4 2012.
For the fourth quarter of 2012, Wall Street is expecting Amazon to report non-GAAP earnings of 52 cents a share on revenue of $22.8 billion.

For 2012 overall, Wall Street is looking for non-GAAP earnings of 69 cents a share on revenue of $62.7 billion.

Screenshot via Amazon

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