Monday, October 22, 2012

Amazon.com, Inc. (NASDAQ:AMZN): Pressure on margins to continue in the near term

Online retailer Amazon.com, Inc.(NASDAQ:AMZN), which is due to report its third quarter results on October 25, is expected to lose $0.08 a share, on revenues of $13.92 billion, Jiang Zhang said, writing in the portal seekingalpha.com.

For the fourth quarter the company is expected to forecast revenues at $22.84 billion.

The company has been investing a lot on its fulfilment centres and this is expected to continue. This s what is putting a downward pressure on its operating margins and Zhang said that the state of affairs will play out for a couple of more quarters before the investments will start showing a positive impact on the margins.

"Current investment in fulfilment will be a long-term positive for Amazon in that it will eventually reduce airfreight cost as more items are fulfilled by ground transportation, paving the way for margin expansion. I note that Amazon's net shipping cost has declined from $935 million (5.4% of net revenue) in 4Q11 to $585 million (4.6% of net revenue) in 2Q12," Zhang said.

In the second quarter Amazon had recorded a 32 percent rise in revenues on brisk sales of electronic and general merchandise and gross margin saw an uptick of 198 basis points.

Amazon's fourth quarter guidance will be keenly watched out for especially as it is supposed to start selling its new Kindle Fire tablets in early November.

 The tablets will get competition from Apple's so-called iPad Mini that is expected to be launched towards late October. Amazon will have to factor in this competition and its own estimates of its sales.

It can also face competition from Google's Nexus 7 tablet that has been slowly gaining in popularity and Microsoft's Surface tablet.

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