Author: Rory Maher, CFA

Amazon reports earnings after the close of the market today.  We’ll be following the earnings live at 4 PM EST here.

The Bottom Line: Despite risks tied to the company’s exposure to physical media like books and console games (consumers are migrating to increasingly competitive digital formats), Amazon remains the biggest and strongest e-commerce franchise online and its third-party business continues to outpace competitors like eBay. 

The company has a strong, innovative management team that is transitioning the company to digital formats (like the Kindle and Amazon MP3) while maintaining its core e-commerce foothold.

The Street is looking for about 30% same-store Q1 sales growth, a modest deceleration from the 34% during Q4 ’09, which was driven by a strong holiday season.  Calls to industry executives during the quarter and yesterday’s in-line eBay results give us confidence the company will meet expectations.  If management provides conservative guidance for the remainder of the year like eBay did, the expensive AMZN shares could take a hit. 

Background: The AMZN shares have modestly underperformed the S&P and NASDAQ this year, but trade at a pretty rich 23 times 2010 EV/EBITDA.  As a result, there is little room for missteps when the company reports earnings this evening.  We don’t expect the company will miss earnings, but eBay’s conservative outlook does leave open the possibility that Amazon could do the same, potentially impacting the stock negatively.

Key Consensus Estimates:

• Revenue: $6.9 Billion.
• Operating Income: $466 Million.
• GAAP EPS: $0.61.
• Key Items To Watch Out For: Kindle, third-party sales, update on Zappos, digital media sales, web services. 

Here is an excellent snapshot from Citi analyst Mark Mahaney: (click to enlarge):

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From OPEN Forum: Small Business Optimism dipped slightly during November.  The dip is somewhat surprising given recent modest improvements in consumer confidence and initial signs that the holiday shopping season is shaping up to be stronger than last year.

However, this is just one month’s data and does not break the recovering trend.  It could likely be a temporary breather after a fairly strong upward trend since March.

For example, though the index fell 0.8 points in November, it is still 7.3 points above March’s bottom. 

Still, the index has been below 90 for six quarters now, which is well below other recessions (even the deep 81-82 downturn).

This indicates just how deep this recession remains.

Note: this article was previously published on The OPEN Forum. See more:

• The Best Business Advice I Ever Got
• When And How To Fire People
• How To Set Priorities
• The Key To Small Business Success

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See Also:

• Small Business Bankruptcies Still Climbing