On the eve of Amazon's fourth quarter earnings report, analysts are tripping over themselves with warnings that the company's outlook may fail to impress Wall Street. Analysts expect the e-tailing giant to lower its 2001 sales targets Tuesday.
Robertson Stephens analyst Lauren Cooks Levitan even warned investors on Monday to beware of Amazon's "spin effect," where Amazon executives give little real information, but try to paint a happy picture despite big losses. Levitan, who noted Amazon (Nasdaq: AMZN) typically issues a mixed quarter, will "back down from its 2001 sales target of $4 billion."
Amazon's actual earnings results are almost an afterthought, unless the company delivers fourth quarter revenue topping $1 billion, analysts said. The company preannounced its sales figures Jan. 8. The company had predicted net sales would exceed $960 million, the bottom of Wall Street's anticipated range of $950 million to $1.05 billion. At the time, Amazon said its operating losses are expected to be less than 7 percent of net sales, implying a loss of 26 cents a share for the quarter, in line with First Call consensus estimates.
Analysts quickly downgraded Amazon following the fourth quarter sales figures, but shares have rebounded this month. Shares of Amazon ended the regular session Monday up 63 cents to $20.13 on the Nasdaq, up about 30 percent since the company's fourth-quarter outlook earlier this month.
For the fourth quarter, analysts said Amazon could top its previous sales target. Some analysts anticipate the company will post revenue between $970 million and $985 million, and earnings in line or ahead of estimates. However, the consensus view is that Amazon's outlook will disappoint.
"They'll have to take into account a couple things that weren't on the table a couple weeks ago," said Kevin Silverman of ABN AMRO Inc. He predicted the company will have to confront a slowdown in year-over-year customer growth and a softening economy.
It would be highly unlikely for the company not to lower fiscal 2001 revenue guidance from $4 billion to around $3.5 billion to $3.7 billion, Bernstein analyst Faye Landes said in a research note.
Even if Amazon doesn't cut its sales targets, analysts doubt the company can deliver. At the end of the third quarter, Amazon indicated that it expected fiscal 2001 revenue to be $4 billion. That figure would mean a re-acceleration of the company's growth rate to 45.5 percent from the 42 percent it saw in the fourth quarter, an unlikely event.
"Amazon is likely to experience decelerating, and ultimately plateauing revenues," said Landes. Amazon's revenue per user and new customer growth has stalled and the "magnitude and implications of Amazon's revenue deceleration" aren't understood yet, said Landes, who started coverage of the company with an "underperform" rating Monday.
Statistics show that while the company has continued to add new customers at a nice clip, there has been a slowdown in the amount that customers are buying. Just 50 percent of existing customers made a purchase in the fourth quarter, down considerably from 78 percent of customers in the fourth quarter of 1999, according to Deutsche Banc.
Aside from revenue, other key factors investors should watch include the company's operational efficiencies and the quantity of buyers that bought outside of any one category. Toys and electronics, the company's most boasted-about expansions, will be closely scrutinized categories, analysts said.
Levitan said Amazon executives, perhaps knowing they will face a tough crowd Tuesday, will be cagey. "We expect management to focus less on absolute numbers and more on overall trends and the tough consumer environment during the holidays," she said. "While we recognize many retailers suffered from tighter consumer spending levels in the fourth quarter, we believe Amazon should have cleaned up."
Levitan said Amazon should be thriving now that competitors such as eToys (Nasdaq: ETYS) and other rivals are struggling.
Investors will also be alert for more detailed timing on profitability. Management has been coy so far regarding what revenue level is necessary for Amazon to become profitable, and anything less than solid optimism could send shares reeling.
Jeetil Patel, an analyst at Deutsche Banc, said the company may have to become more efficient, cut jobs, discontinue weak product categories and possibly close distribution facilities to be profitable. If Amazon announces any of those moves, Patel said investors would react favorably.
"Any guidance into revenues and potential profitability may be a major positive for the stock," Patel added.