Amazon Hits Numbers, Cuts Outlook
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Online retailer Amazon reported third-quarter results today roughly in line with analysts' expectations, but cut its fourth-quarter guidance in a sign that its feeling the economic headwinds.
Amazon (NASDAQ: AMZN) is now looking for 2008 revenue of $18.46 billion to $19.46 billion, revising downward its earlier projection of $19.35 billion to $20.10 billion.
The company reported Q3 sales of $4.26 billion, a 31 percent increase over the same period a year ago. That mark was just shy of the Street's estimate of $4.27 billion, and toward the low end of Amazon's own guidance.
The company reported profits of $118 million, a 48 percent increase over the year-earlier period, for earnings of 27 cents per share. Analysts polled by Thompson Reuters had been looking for earnings of 25 cents per share.
Analysts have been eagerly awaiting Amazon's third-quarter results, as the e-commerce bellwether's performance could provide a glimpse of how the all-important holiday season will shape up.
In announcing the results, CEO Jeff Bezos stuck to his usual cheery tone, saying that his company's shipping offers put it in a good position to grab market share in the upcoming shopping blitz.
"We remain relentlessly focused on delivering value to customers through lower prices, improved selection and our free shipping offers, including Amazon Prime," Bezos said in a statement. "Customers saved more than $700 million with our global free-shipping programs over the past twelve months, and we expect more customers than ever will take advantage of the benefits of Amazon Prime this holiday season."
Last quarter, as the sinking economy was already weighing on retailers' balance sheets, Amazon turned in an impressive performance, posting a 102 percent increase in year-over-year profits.
Indeed, amid the worsening e-commerce climate, analysts have been wondering how long it Amazon could buck the trend.
"For the past several quarters, Amazon distanced itself in terms of both revenue and earnings growth from Internet and retail peers and also from the general trends in overall e-commerce," Barclays Capital analyst Douglas Anmuth wrote in a recent research note. "However, given heavy exposure to discretionary retail against a recessionary backdrop in nearly all markets, we believe the next several quarters could be challenging."
In the wake of the disappointing results e-commerce giant eBay reported last week, Anmuth lowered his estimates for Amazon's fourth quarter and 2009 outlook.
"It is becoming apparent that no company is immune from this downturn, and while we believe Amazon should continue to outperform broader retail and e-commerce, we think it will be impacted by the tough environment."
Despite the revised outlook, Anmuth maintains a favorable view of the company, crediting its relationships with third-party sellers, selection and Amazon Prime service with helping it distance itself from other retailers over the last couple years. Anmuth also gave the company's management high marks for its willingness to take a long-term approach to growing the business.
Bezos gave voice to that spirit while talking up the Kindle, the company's long-delayed e-book reader, at Amazon's annual shareholders' meeting earlier this year.
"One of our competitive advantages at Amazon is that we are willing to plant seeds -- if we think the seed is important -- and nurture it for a long time," Bezos said. "Everything worthwhile that we've done, we've had to invest in for some number of years, so I doubt this will be any different," he said at the time.
Amazon does not offer sales figures for the device, but in the third quarter, Citibank analyst Mark Mahaney called the device the "iPod of the book world," and offered the projection that Amazon could rake in $1 billion from Kindle sales by 2010.
The third quarter also saw Amazon continue its drive into the digital media sector, revamping its streaming media service with a slick interface and impressive lineup of content.
Amazon continues to chase Apple (NASDAQ: APPL) in the music-retail market, enjoying the benefit of licensing agreements with the four major record labels to offer their catalogs free from copy and usage restrictions.
The company also struck an innovative advertising partnership with TiVo (NASDAQ: TIVO), where viewers will see menus appear on their screens advertising links to purchase songs or merchandise featured in a TV show from Amazon's store.
The most recent period also saw Amazon continue its push into cloud computing, opening the Elastic Block Store, designed to facilitate the purchase of raw computing power and storage capacity.
Amazon shares fell $0.24 on the day to close at $49.99. Despite its solid performance, Amazon's stock has taken a beating in the last two months along with the rest of the market, dropping about 57 percent since mid-August.