Amazon Earnings Preview: Fourth Quarter 2008

Amazon [[AMZN]] is scheduled to report fourth quarter 2008 results after the market closes on Thursday, January 29. Based on our analysis, we at EarningsPreview.com are expecting AMZN to report mixed results that will likely disappoint Wall Street.

 

Analyst Expectations

We are forecasting revenues of $6.49 billion and EPS of $.36. This would represent a 14% increase in revenues from last year’s $5.67 billion in the same period. The current analyst consensus calls for revenues of $6.44 billion and $.39 EPS. On October 22, the company provided fourth quarter guidance for revenues of $6 – 7 billion.

 

We expect that Amazon will deliver better than expected top-line numbers, but could disappoint on earning side. Our checks indicate that traffic levels were at record highs this holiday season. In addition, at least one survey found that those purchasing on Amazon.com were actually spending more this year than they did last.

 

Our view of the ecommerce sector is that we are starting to see consolidation taking place where a small number of sites (e.g. Amazon.com) will dominate the ecommerce sector. The company’s strategy is clearly to continue doing whatever it takes to gain market share. Thus, we would expect to continue to see strong top-line results even in this tough economy, while margins will continue to be hit by increased promotional activity.

 

Share Performance

Amazon’s shares have held up so far this year, falling only 1% ytd. However, last year the stock fell 45% underperforming even the Dow Jones index’s 34% drop.

 

Valuation

Shares are now trading at 35x consensus 2009 EPS estimates. This is a healthy premium to the relative valuations of their peer group. While we certainly believe in the company’s business model and strategy it is hard to recommend buying this stock based on the current valuation levels. We would expect Amazon to experience P/E compression over the course of the 2009.   

 

Recommendation: Sell with a $35 price target.

 

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