Strong holiday sales and the introduction of the new Kindle Fire will help Amazon beat conservative revenue expectations, but cost pressures given shipping deals, rising ad spend, and the unknown impact of its new tablet will squeeze margins in coming quarters. Jeff Bezos� company is going all-in on growth in order to consolidate its dominance.
�Multiple third party sources have confirmed Amazon�s strength thus far in Q4,� read the first line of Caris & Company�s research note on Amazon, released Friday. Kindle Fire sales could hit 10 million this quarter, making up 8% of revenues. For comparison�s sake, Apple sold 11.1 million iPads in Q3 (which isn�t a holiday quarter).
At an average sales price of $150, and making up 8% of revenues as mentioned above, hardware sales aren�t �inconsequential, but also not a growth driver,� Caris� Scott Tilghman explained. �At its core, Amazon is a multiplatform retailer with growth coming from many segments, products, and geographies,� Tilghman said.
Amazon is setting itself up for sustained revenue growth going forward, but it will face important headwinds. In the fourth quarter, the company headed by Jeff Bezos was forced to engage in heavy advertising while offering free shipping deals. U.S. online holiday spending surged 15% this year to almost $25 billion for the season, according to comScore, and Amazon was front and center, along with eBay and even Wal-Mart.
The large online retailer is making it �increasingly difficult for the competition� given improvements in purchasing efficiencies, fulfillment, and relationships with third party merchants �to offer integrated retail solutions,� according to Caris.
Jeff Bezos is making an all-out bet on expansion given the company�s dominant market position. Added to the tablet push via the Kindle Fire, Amazon is reportedly working smartphone which should be ready around Christmas next year, Citi�s analysts said. Beyond challenging Apple on the tablet front, Bezos would be taking them on, along with Google, on the mobile front.
In a risk-reward analysis, Tilghman believes Amazon is an attractive long-term bet, but investors should remain cautious in the near-term. �[We] remain cautious in the short-term until the company is better able to leverage recent [additions].� The fourth quarter should be profitable, but margin contraction will be considerable, possibly leading to a top-line beat and bottom-line miss.
Caris� analyst has an �above average� rating on the stock and $250 price target.
Shares in Amazon closed the day in the red, down .01% or $1.16 to $182.26..
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