QUICK TAKE: Strong quarter, but outlook a bit soft. That aside, the company seems very healthy overall, with strong growth across all segments and geographies.
Q1 revenue 0f $7.1 billion was nicely ahead of expectations and above the high end of the company’s guidance. GAAP EPS of $0.66 was $0.05 above consensus.
The outlook for Q2 is modestly below expectations, which will probably ding the stock. This is a consistent pattern with Amazon, so don’t freak out about it.
Performance relative to key consensus estimates:
- Revenue: $7.1 billion vs. consensus of $6.9 Billion.
- GAAP EPS: $0.66 vs $0.61 estimate
Here’s JP Morgan analyst Imran Khan‘s early read:
Amazon released its 1Q’10 results. Our first reactions, prior to the 5PM ET conference call:
- Revenue far ahead of guidance, expectations. 1Q revenue was $7.13B, $131M ahead of the top end of guidance, $290M ahead of consensus, and $400M above our estimate.
- Pro forma operating margin at 7.1%. This represented an almost ~75 bps improvement over the year-ago quarter, and reported operating income of $394M was $39M above the top end of guidance.
- Domestic revenue growth accelerated in all categories. North America Media revenue was up 22% Y/Y, up from 20% growth in 4Q. EGM grew 73%, compared to 54% in 4Q, with overall NA sales up 47% Y/Y, a second straight quarter of rapidly accelerating growth. International Media revenue was up 29% (23% ex-FX), while EGM rose 70% (61% ex-FX). International revenue growth was 45%, or 37% ex-FX, matching the 4Q ex-FX growth rate.
- Gross margin down ~60 bps Y/Y. Although up sequentially due to seasonality, the gross margin figure of 22.9% was a decline compared to 23.5% in 1Q’09. North America gross margin was slightly better Y/Y, and a ~140 bps decline in International gross margin accounted for the Y/Y decline. We think International gross margins were impacted by the addition of 21 new categories in the last year.
- Revenue guidance in line with consensus. 2Q revenue is expected to be $6.1B-$6.7B, representing 31%-44% growth. This compares to incoming consensus of $6.39B and our estimate of $6.12B.
CONFERENCE CALL STARTS AT 5PM ET: Listen here.
Here’s the preview:
Amazon reports earnings after the close of the market today. We’ll be following the earnings live at 4 PM EST here.
The Bottom Line: Despite risks tied to the company’s exposure to physical media like books and console games (consumers are migrating to increasingly competitive digital formats), Amazon remains the biggest and strongest e-commerce franchise online and its third-party business continues to outpace competitors like eBay.
The company has a strong, innovative management team that is transitioning the company to digital formats (like the Kindle and Amazon MP3) while maintaining its core e-commerce foothold.
The Street is looking for about 30% same-store Q1 sales growth, a modest deceleration from the 34% during Q4 ’09, which was driven by a strong holiday season. Calls to industry executives during the quarter and yesterday’s in-line eBay results give us confidence the company will meet expectations. If management provides conservative guidance for the remainder of the year like eBay did, the expensive AMZN shares could take a hit.
Background: The AMZN shares have modestly underperformed the S&P and NASDAQ this year, but trade at a pretty rich 23 times 2010 EV/EBITDA. As a result, there is little room for missteps when the company reports earnings this evening. We don’t expect the company will miss earnings, but eBay’s conservative outlook does leave open the possibility that Amazon could do the same, potentially impacting the stock negatively.
Key Consensus Estimates:
- Revenue: $6.9 Billion.
- Operating Income: $466 Million.
- GAAP EPS: $0.61.
- Key Items To Watch Out For: Kindle, third-party sales, update on Zappos, digital media sales, web services.
Here is an excellent snapshot from Citi analyst Mark Mahaney: (click to enlarge):
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