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Amazon Earnings Top-level Analysis

Published on February 2, 2007

Amazon Earnings Top-level Analysis

February 2, 2007

Here is my key take away from Amazon’s 3months results, ended Dec 31, 2006:

  • Net sales grew 34% to $3.99 billion, compared with $2.98 in 4Q of 2005. Analysts were expecting $3.77 billion.
  • Net Income was $98 millions vs. $199 millions in 4Q of 2005 i.e. $0.23/share vs. $0.47 last year. Analysts were expecting $90.4 millions or $0.21/share.
  • Operating cash flow was $702millon in 2006 vs. $733 millions in $2005. Free cash flow decreased by 8% to $486millions vs. $529 millions in 2005.
  • CFO Tom defended drop in gross profit margins to expansions new countries. Short term pain but good for long term.
  • Active customers grew 16 percent to 64 million in 2006. That’s a key number to watch: Not only does it represent a customer base Amazon.com can sell to; it’s also what makes Amazon.com attractive as a marketplace for third-party merchants.
  • In the first seven hours of pre-orders for the new “Harry Potter” book, Amazon has already sold more than triple the first-day pre-orders for the previous Harry Potter book. Amazon.com sold more than 1.5 million copies of Harry Potter and the Half-Blood Prince through pre-orders.
  • North America segment sales, representing the Company’s U.S. and Canadian sites, were $2.21 billion, up 31% from fourth quarter 2005. International segment sales were $1.78 billion, up 37% from fourth quarter 2005.
  • The Company announced the beta launch of endless.com, its new shoe and handbag website, which features the unusual business practice of free overnight shipping (next business day) on all items. Additionally, customers enjoy free return shipping, a 365-day return policy, a 110 percent price guarantee and an innovative navigation and search experience. As a special promotion in February, endless customers will receive overnight shipping for *negative* five dollars.
  • Details of earnings are here

First Quarter 2007 Guidance

  • Net sales are expected to be between $2.85 billion and $3.00 billion, or to grow between 25% and 32% compared with first quarter 2006.
  • Operating income is expected to be between $82 million and $122 million, or between (22%) decline and 16% growth, compared with first quarter 2006 (Includes $38 million for various charges).

Full Year 2007 Expectations

  • Net sales are expected to be between $13.00 billion and $13.70 billion, or to grow between 21% and 28% compared with 2006.
  • Operating income is expected to be between $355 million and $505 million, or between (9%) decline and 30% growth, compared with 2006. This guidance includes $165 million for various charges)

Let’s wait for the market to open, I shall share how did I play Amazon.

Profitable trading, OptionPundit

2 Comments

  • So how did you play AMZN? My data shows that the price fell a little bit last Friday. However, I believe that this is a good company for the long run, just not the type of company that I would trade on daily or weekly basis 😉

  • Avatar optionpundit says:

    Oskar, to answer first, the trade is still open and it is in my loss zone. I still have 2 weeks to go to adjust if needed.

    This was a non-directional trade, and so it doesn’t matter which direction. What matters to me is the “move” and that’s what I was/am expecting, whichever direction.

    Cheers, OptionPundit

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