Amazon Surges to New Highs on Expectation of Positive Holiday Report

Amazon stock hit a 52-week high today in anticipation of a strong earnings report on Tuesday, boosted by a spike in holiday spending.

amazon_event1In afternoon trading, shares were up almost $10, touching $284. A year ago, the stock was sliding toward its 52-week low of $172.

Amazon usually grows at twice the rate of the overall e-commerce market during the fourth quarter. The last three months of 2012 should be no exception.

According to comScore’s final tally for the November-December shopping season, online spending in the U.S. totaled $42.3 billion, which was a 14 percent increase over 2011, but fell short of its expectations. Ahead of the Christmas holiday, comScore was anticipating a 16 percent jump in spending.

So, if it follows form, Amazon’s year-over-year growth should end up around 30 percent.

Amazon is forecasting net sales between $20.25 billion and $22.75 billion, representing a jump of 16 percent to 31 percent.

Youssef Squali, an analyst with Cantor Fitzgerald, wrote in a note to investors today that he is expecting Amazon to report revenue of $22.05 billion, up 27 percent. The consensus by analysts is a little more bullish, at $22.3 billion.

The positive forecasts are expected in part because of the performance by others, most notably eBay and Google, which already reported fourth-quarter earnings. EBay beat analysts’ expectations by a penny, boosted by strong sales from its mobile and marketplaces division (and it, too, was trading at a 52-week high today, with a share price above $56, up more than 2 percent). Likewise, Google’s cost-per-click business increased 2 percent compared to the prior quarter, reversing a long period of declines, partly because of a strong performance by its new Shopping group.

Interestingly, halfway through the month of December, a monster quarter by Amazon was not a done deal.

There were a few signs that sales had been soft due to one concern: Procrastination. As Amazon’s base of Prime users grows, customers are becoming more comfortable delaying purchases, since they know they can get free two-day shipping on qualifying items. Coupled with Amazon’s reputation for on-time delivery, customers were able to wait until Dec. 21 in order to get packages delivered by Christmas Eve.

Another closely watched metric for Amazon will be its profit margins.

Jeff Bezos, the company’s founder and CEO, has been particularly outspoken recently about sacrificing margins for the benefit of generating more free cash flow.

Cantor Fitzgerald’s Squali is anticipating fourth-quarter operating margins of 1.3 percent, but cautions that “we have little visibility into this metric.” Amazon spends a lot of money on building new distribution centers, offering price promotions and free shipping. It is also investing heavily in cloud computing, packaging free video streaming with Amazon Prime, and its hardware division, including Kindle.

Due to those investments, operating margins may be very low.

To that end, Squali says that any commentary by Amazon’s tight-lipped management team on Tuesday will be key for the stock’s performance going forward.

On the whole, analysts are expecting Amazon to generate a profit of 29 cents a share. Amazon left itself a lot of room with its earlier guidance, saying results could be anywhere from an operating loss of $490 million to an operating profit of $310 million, compared with an operating profit of $260 million in the year-ago period.

Tune in after the bell on Tuesday for live coverage of Amazon’s results.


Latest Video

View all videos »

Search »

The problem with the Billionaire Savior phase of the newspaper collapse has always been that billionaires don’t tend to like the kind of authority-questioning journalism that upsets the status quo.

— Ryan Chittum, writing in the Columbia Journalism Review about the promise of Pierre Omidyar’s new media venture with Glenn Greenwald