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Amazon is
scheduled to report fourth quarter 2008 results after the market
closes on Thursday, January 29. Based on our analysis, we 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.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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