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Amazon: Has the Stock Price Matched Disappointing Result with Weak Q4 Outlook?

October 28, 2011 | About:
Amazon (AMZN), the number-one Internet retailer, has surprised the investing public when it reported a drop of 73% in third quarter earnings and announced a weaker-than-expected fourth-quarter outlook, generally the best quarter for shopping and retailing business. Amazon said it can even expect the potential for the operating loss for the next quarter. Right after the announcement, the stock tumbled 12% on Tuesday to around $200 a share.

On the conference call with management, Thomas Szkutak, senior vice president and CFO of Amazon, reported that the TTM operating cash flow increased 19% to $3.11 billion, the TTM FCF decreased 17% to $1.53 billion. The company earned $63 million for the quarter, EPS of 14 cents, just equivalent to 27% of the last year’s profit of $231 million, with an EPS of 51 cents. The investing public has been expecting a profit of 24 cents per share. In terms of financial health, AMZN has a level of D/A around 57%, with the majority in accounts receivable, and ample long-term debt at 12% of the total assets. It is a quite liquid company as the level of cash stays at more than 34% of the total assets. In the call, it was said that the cash and marketable securities increased $441 million year-over-year to $6.3 billion. As the new product of Kindle Fire introduction, it had to increase the in-stock levels and that pushed the inventory to $3.7 billion, up 50% from a year ago.

For the outlook for the next quarter, the firm expected to have net sales of between $16.45 billion and $18.65 billion, or growth between the rate of 27% and 44%. In addition, GAAP operating income or loss was expected to fluctuate quite widely, from a loss of $200 million to $250 million. That translated 142% decline and 47% decline. The figures included approximately $200 million for stock-based compensation and amortization of intangible assets already. With this surprisingly disappointing result, analyst Ken Sena of Evercore Partners had said, “We’re not seeing the investment pay off yet, but I think investors are impatient as to how long will it take before you will start to see this pay off. When are we going to start to see some signs?” The depressed margin seemed to be the biggest variance from the Wall Street’s expectations, which might be due to the investment of Amazon into Kindle Fire, according to Scot Wingo, chief executive of ChannelAdvisor.

On November 15, everyone will have the chance to enjoy the Kindle Fire. With much lower price than the iPad and no webcam supported, I am not so sure whether it would be welcomed by the public. And with the current quarter results released, the valuation of Amazon has shot up to a very high level, in both individual and historical perspective. The TTM P/E has shot up to 108x, and the cash flow multiples are currently at 30.5x, whereas the average five years are 68.3x and 18.2 for P/E and P/CF respectively. Personally, I would prefer to see the how the Kindle Fire plays out as Amazon has put considerable effort into the new product. Only after that I would consider taking any position in the company if interested.

This is the subjective viewpoint of the author, and it is not the recommendation to buy, hold or sell the stocks mentioned in this analysis. Anyone who wishes to buy, hold or sell the stocks has to do his/her own analysis at his/her own risk

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


Rating: 3.9/5 (11 votes)

Comments

cash9flow
Cash9flow - 2 years ago


Kindle #'s were a disappointment
tyt
Tyt - 2 years ago


Still up there dude
ramboris
Ramboris - 1 year ago
seekingalpha.com/article/939101-gentex-corp-a-wonderful-business-selling-for-a-fair-price

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