It wasn’t a bad holiday shopping season for the world’s biggest online retailer, but Wall Street analysts are hardly forecasting blockbuster sales in the fourth quarter for Amazon.com. Some analysts also have ratcheted down their expectations for Amazon’s Q4 operating income.
In its third quarter earnings release, Amazon, No. 1 in the Internet Retailer Top 500 Guide, projected fourth quarter sales to range from $6 billion to $7 billion and from $18.46 billion to $19.46 billion for the year. Amazon also expected Q4 operating income to range from $145 million to $305 million and from $716 million to $876 million for 2008.
But given the current economic recession and a pullback in consumer spending, RBC Capital Markets now projects that Amazon’s sales in the fourth quarter will only grow year over year by about 12.3% to $6.4 billion from actual sales of $5.7 billion in Q4 2007. That’s in sharp contrast to the last two years when Amazon posted Q4 sales growth of 42% and 34%, respectively. RBC also expects Amazon to post operating income in the fourth quarter of $305.6 million, down from an earlier forecast of $333 million.
“Amazon will grow in the fourth quarter, but the results will be solid and not spectacular,” says RBC e-commerce analyst Stephen Ju. “Amazon used its global retailing base and deep discounting to drive traffic, but they certainly weren’t immune to the downturn in consumer spending.”
For the full year, RBC expects Amazon to post operating income of about $1.04 billion on sales of $18.87 billion. “Amazon employed discounting tactics to drive traffic, but fourth quarter gross margin will be negatively impacted,” says Ju. “Aggressive discounting salvaged holiday sales and reduced inventory, but at the expense of the bottom line.”
Because of its size and diversity, Amazon, which reports full fourth quarter and year-end earnings on Jan. 29, will gain market share as the bad economy forces other online retailers to scale back or leave the market altogether, says a new research note from Citigroup Global Markets.
But Citigroup says the current recession didn’t leave Amazon unscathed in the fourth quarter. Citigroup now expects Amazon to post operating income of $291 million on sales of about $6.24 billion in the final quarter of 2008.
Citigroup also expects Amazon to reveal slower Q4 growth in key merchandising segments, including North American and international media sales, which in Q4 2007 accounted for $2.49 billion--58%--of total sales. “It’s clear that Amazon is being impacted by the severe global recession,” says Citigroup e-commerce analyst Mark Mahaney in a recent research note. “We are estimating only 4.2% year over year growth for the North American media segment and a 2.6% decline for the international media segment. As these are the most mature or oldest revenue segments for Amazon, and combine for 50% to 60% of total revenue, these segments are particularly important to track.”
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