Amazon.com, Inc. (AMZN) succeeded in surpassing revenue expectations for its second quarter, but the company fell short of earnings expectations for the first time since 2006.
The world’s most famous “e-tailer” announced earnings of 45 cents per share for the quarter, which was up more than 40% from last year’s 32 cents. However, the Zacks Consensus Estimate was for 56 cents per share.
Net sales jumped by 41% year over year to $6.57 billion from $4.65 billion. This result inched past expectations of $6.56 billion.
Shares of Amazon plunged more than 10% in the wake of this news. We’ll have to wait and see whether that’s a simple kneejerk reaction, or something more serious. The market has been attuned to the top line so far this earnings season, and Amazon outperformed on that front.
Nevertheless, the earnings miss is a disappointment, especially at a time when the market is looking towards the earnings season to feel better about the sluggishly-improving economy. Amazon’s report is not helpful in that respect, particularly when viewed against a backdrop of solid earnings announcements by other companies today.
The company’s Kindle e-reader has undoubtedly been a success. In fact, the company sold more Kindle books than hardcover books in the last 3 months. However, it is experiencing stiff competition from Apple’s iPad and Google. It was also part of a price war as Barnes & Noble slashed its counterpart device, prompting AMZN to do the same.
For the third quarter, Amazon expects net sales between $6.9 billion and $7.625 billion, which would be up 27% to 40% from a year earlier. Operating income is expected between $210 million and $310 million, or between a 16% drop and 24% gain from last year’s third quarter. The Zacks Consensus Estimate for the quarter is currently 62 cents per share.
Earnings estimates were being tempered a bit heading into this quarterly report. Most of the 33 estimates for this year and 31 estimates for next year were standing still in the preceding weeks, but, of those that did revise, most were to the downside. However, the changes to the consensus were not very dramatic, and the outlooks remain above levels from 3 months ago.
The Zacks Consensus Estimate for this year is $2.95, which is down from $2.98 in the past month. There had been 9 downward estimates in that time and only one upward estimate. The past 7 days experienced 2 downward revisions and 2 upward revisions, though the consensus didn’t move.
As for next year, three downward estimates and one upward estimate conspired to pull the Zacks Consensus Estimate lower by 3 cents in 7 days to $3.91 per share. The past month had seen 10 downward estimates and only 2 to the upside. However, that outlook still suggests year-over-year profit growth of 32.5%.
AMZN is currently a Zacks #3 Rank (‘hold’). We also have a longer term Neutral recommendation on the company.
We’ll have more on Amazon’s quarterly report coming soon…