Analyst reports: Wall Street puts Amazon under holiday microscope
Wall Street is eyeing the major e-tailer more closely than a kindergartener scrutinizes the skies for Santa's sleigh on Christmas Eve.
Analysts say the Seattle-based e-tail giant--one of the world's largest and best-known business-to-consumer e-commerce companies--will either make or break its reputation among investors as holiday shoppers flood the popular site.
But unlike last year, when investors worried about whether the company could fulfill lofty customer service pledges and deliver products before Christmas, investors are now concerned about a series of site outages that have left customers confused--and possibly looking to competitors for online purchases.
On Nov. 24--the Friday after Thanksgiving and the traditional start of the holiday spending spree--Amazon suffered a 30-minute outage. About 1.3 million people logged onto Amazon that day, according to traffic tracking site Nielsen/NetRatings, but the company reported that the outage was unrelated to a traffic overload.
A consistently running site is a paramount concern for e-tailers, because a one-minute outage could erase hundreds of thousands of dollars worth of revenue and create lasting dissatisfaction among customers. Thomas Weisel Partners estimated that a 20-minute outage during a peak shopping time on Thursday deleted roughly 20,000 product orders and $500,000 in revenue for Amazon.
"In the 'big picture,' we believe this event is not that important. We assume that Amazon shoppers, who were unable to access the site, came back later to complete their purchase, and indeed strong sales trends resumed immediately following the outage," analysts Timothy Fogarty and Debra Bernstein wrote in a research note issued Monday. "However, we will keep a close eye on any further developments of this nature, as the sales impact could ultimately be much more meaningful."
Other analysts are concerned about a broader slowdown in consumer spending during the holidays. Although it's too early to predict Amazon's December sales, ABN AMRO analyst Kevin Silverman said, "Prognosticators are busily reading the tea leaves to figure that out," and opinions are "all over the map."
But the signs so far do not portend a great holiday season for retailers, Silverman wrote in a research report issued Monday. Gross domestic product growth--a key indicator of the financial health of the economy--dipped from 5.6 percent in the second quarter to 2.4 percent in the third quarter.
"Interest rates are up, durable goods sales are down, oil prices are high, there's war in the Middle East, an uncertain presidential election, and consumer confidence is at the lowest level in more than a year," Silverman wrote.
In other research notes drafted Monday, analysts waxed enthusiastically about Amazon as a consumer-friendly site. Last weekend, according to Thomas Weisel, Amazon sold more than 1,000 items per minute and 50,000 items per hour. It also has one of the highest customer-service rankings among Internet retailers.
But Wall Street clearly remains troubled by the company's business model, which hasn't produced profits.
Jeffries analysts, for example, said the company is a premier online shopping center but initiated coverage with a tepid "hold" rating and meager 12-month target price of $25 per share--exactly what the company stock was trading at Monday morning.
A poster child for the meteoric ascent and stinging collapse of the broader business-to-consumer sector, Amazon has traded in a 52-week range from $19.37 to $113. The shares are down 67 percent so far this year.
"In our opinion, Amazon has created the leading online shopping hub--from both the consumer experience vantage point and market share--which over time should harness the efficiencies of the Internet and become very profitable," Jeffries analysts Michael Legg, Louis Amoroso and Jared Bilanin wrote in a research note issued Monday.
"However, given the company's continued buildout strategy (geographically and product-wise) and lack of clear profitability visibility, we believe investors are best suited to await the alignment of profitability and valuation in Amazon's business model."