Amazon Q2: Still King of the E-Commerce Jungle?

E-tail juggernaut Amazon is set to report earnings Thursday afternoon after the market closes, and analysts will be waiting to see if the company can continue to buck the recessionary trend.

Looking at the numbers, analysts polled by Thomson Reuters, are expecting Amazon (NASDAQ: AMZN) to report second-quarter earnings of 31 cents per share on $4.68 billion in revenue, on average.

For the first quarter, Amazon soundly beat estimates, posting net income of $177 million, or 41 cents a share, a 24 percent increase from the same period last year. The company also reported total sales for Q1 of $4.89 billion, up 18 percent from the first quarter in 2008. Analysts were projecting sales of $4.755 billion.

Today’s earnings report comes as Amazon continues to extend its reach well beyond its core e-commerce business. It leads in the burgeoning e-reader market after the launch of its Kindle 2 and large-screen DX model, earning a reputation for innovation in the sector.

Additionally, CEO Jeff Bezos recently told investors ventures such as the Amazon Web Services Elastic Compute Cloud (EC2) are proving successful as well. EC2 allows companies to pay for server time in the cloud on a metered basis, instead of buying and maintaining their own. The Seattle, Wash.-based company is also enjoying an 18-percent jump in third-party sellers compared to last year, according to the Amazon chief.

Broadpoint AmTech is expecting Q2 revenue of $4.66 billion, up 15 percent year-over-year, but cites pressure in the digital book market, along with unresolved online sales tax issues in several states as hampering the company’s financial health.

“While the company is off to a strong start in terms of the digital delivery of books, the markets for other media are also key opportunities over the long-term. We anticipate Amazon will come up against many well-funded competitors for delivery of movies, video games, TV shows, and music (all areas where Amazon’s efforts have yielded minimal gains thus far),” says a research note issued by Broadpoint AmTech. “Additionally, recent press reports indicate that book publishers may push back on the prices charged for e-Books, which could pressure margins or at least slow the transition to digital.”

The sales tax issue

Meanwhile, lawmakers in several states, most recently North Carolina and Rhode Island, say Amazon Associate affiliate programs in their states establishes a physical presence, which means Amazon should be required to collect sales taxes. Amazon’s position has been that affiliates do not count as a physical presence that equates to a warehouse or shopping center and has responded by disbanding its affiliates in those states.

“Amazon has responded by canceling its relationships with affiliates in those states, and while we expect
it will be able to replace lost traffic via incremental paid search or other advertising, the economics of securing that traffic might not be as good. Investors will be eager to hear any color from management about the impact here,” says the Broadpoint AmTech report.

Also of note in terms of the company’s bottom line is the recent settlement with Toys “R” Us. In June, Amazon agreed to pay the company $51 million to end a legal dispute that began in 2004 over terms of a partnership between the two firms. Toys “R” Us claimed that Amazon violated the agreement by letting other retailers sell toys at

The pay out to Toys “R” Us will be made during the current quarter, though it was charged as operating expenses during the second quarter. At the time, Amazon declined to say how the settlement would hurt second-quarter results.

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