AMZN to Report Apples-to-Oranges Earnings Results This Week – Comparability Will be a Challenge
On January 28th, we wrote about the difference in how AAPL and AMZN are applying a new revenue recognition guideline (ASU No. 2009-13). To see our write-up, click link here.
What’s interesting is that AMZN will report a “apple-to-orange” numbers this week that are sure to confuse analysts and we doubt that AMZN management will provide much color as to the impact of the accounting change.
Below, you’ll find our research note on AMZN that we published earlier in the week (click link here). Given the lack of comparability to last year, tomorrow’s earnings release will be especially interesting.
Tiburon Research Group
Earnings Preview: AMZN
April 20, 2010
Unlike Apple (AAPL – $244.59), Amazon (AMZN – $144.20) decided to apply Accounting Standard Update (ASU) No. 2009-13, Revenue Recognition – Multiple Deliverable Revenue Arrangements, using the “prospective” method. Therefore, historical financial statements will not be adjusted and revenue growth rates versus last year will ‘optically’ appear stronger than reality.
Therefore, let’s call a spade a spade. Much of this year’s EPS upside will be a function of a “revenue boost” versus LY that will generate incremental leverage.
In Q1 2010, we’re expecting a material top-line ‘beat’ along with incremental leverage on line items that are largely fixed or have a fixed cost component (e.g. Fulfillment, Technology, G&A), naturally helped in part by the accounting change.
The only concern relates to GPM% as 2-year run rates materially toughen in Q1 2010 relative to Q4 2009. It remains to be seen whether the North American Division can successfully build upon its anomalous GPM% improvement in FY 2009 after 3 straight years of year-over-year declines.
While we see no downside EPS risk in FY 2010, concerns include:
* Was FY 2009 an anomaly? North American Division merchandise margins were higher in FY 2009 after 3 disappointing years. Will the longer-term trend continue in FY 2010?
* Zappos will become a “profitability drag.” The question is how much? While the division is not material, one thing investors can be certain about is that management won’t tell you the answer.
You can determine via the 10-K that Zappos generated a $39 million Net Loss in FY 2008 on $635 million revenue. Yet, on the Q2 2009 conference call, AMZN management suggested that the subsidiary generated a “slight profit” during FY 2008 prior to amortization and stock-based compensation.
* Marketing Expense has now de-leveraged in 9 straight fiscal quarters as AMZN clearly has been ‘buying’ sales over this timeframe. The question of when sales growth slows is essentially a function of when management decides to ratchet lower its marketing spend (maybe never).
In Q1 2010, we’re forecasting EPS of $0.77 versus the current consensus sell-side estimate of $0.61. Our estimate implies $7.536 billion revenue (+54.2%) and a +77 Bps EBIT margin improvement versus LY. We’re forecasting Operating Income of $441.3 million (guidance range of $275 million to $365 million).
In Q2 2010, we’re forecasting EPS of $0.65 versus the current consensus sell-side estimate of $0.56. Our estimate implies $7.008 billion revenue (+50.7%) and a +80 Bps EBIT margin improvement versus LY. We’re forecasting Operating Income of $375.7 million.
In FY 2010, we’re forecasting EPS of $3.12 versus the current sell-side consensus estimate of $2.90. Our estimate implies $34.783 billion revenue (+41.9) and a +27 Bps EBIT margin improvement versus LY.
This entry was posted
on Wednesday, April 21st, 2010 at 3:42 pm and is filed under Commentary.
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You can leave a response, or trackback from your own site.
AMZN to Report Apples-to-Oranges Earnings Results This Week – Comparability Will be a Challenge
On January 28th, we wrote about the difference in how AAPL and AMZN are applying a new revenue recognition guideline (ASU No. 2009-13). To see our write-up, click link here.
What’s interesting is that AMZN will report a “apple-to-orange” numbers this week that are sure to confuse analysts and we doubt that AMZN management will provide much color as to the impact of the accounting change.
Below, you’ll find our research note on AMZN that we published earlier in the week (click link here). Given the lack of comparability to last year, tomorrow’s earnings release will be especially interesting.
Tiburon Research Group
Earnings Preview: AMZN
April 20, 2010
Huge Top-Line / EPS Upside Helped via Accounting Change. Yet, GPM% Concerns.
Unlike Apple (AAPL – $244.59), Amazon (AMZN – $144.20) decided to apply Accounting Standard Update (ASU) No. 2009-13, Revenue Recognition – Multiple Deliverable Revenue Arrangements, using the “prospective” method. Therefore, historical financial statements will not be adjusted and revenue growth rates versus last year will ‘optically’ appear stronger than reality.
Therefore, let’s call a spade a spade. Much of this year’s EPS upside will be a function of a “revenue boost” versus LY that will generate incremental leverage.
In Q1 2010, we’re expecting a material top-line ‘beat’ along with incremental leverage on line items that are largely fixed or have a fixed cost component (e.g. Fulfillment, Technology, G&A), naturally helped in part by the accounting change.
The only concern relates to GPM% as 2-year run rates materially toughen in Q1 2010 relative to Q4 2009. It remains to be seen whether the North American Division can successfully build upon its anomalous GPM% improvement in FY 2009 after 3 straight years of year-over-year declines.
While we see no downside EPS risk in FY 2010, concerns include:
* Was FY 2009 an anomaly? North American Division merchandise margins were higher in FY 2009 after 3 disappointing years. Will the longer-term trend continue in FY 2010?
* Zappos will become a “profitability drag.” The question is how much? While the division is not material, one thing investors can be certain about is that management won’t tell you the answer.
You can determine via the 10-K that Zappos generated a $39 million Net Loss in FY 2008 on $635 million revenue. Yet, on the Q2 2009 conference call, AMZN management suggested that the subsidiary generated a “slight profit” during FY 2008 prior to amortization and stock-based compensation.
* Marketing Expense has now de-leveraged in 9 straight fiscal quarters as AMZN clearly has been ‘buying’ sales over this timeframe. The question of when sales growth slows is essentially a function of when management decides to ratchet lower its marketing spend (maybe never).
In Q1 2010, we’re forecasting EPS of $0.77 versus the current consensus sell-side estimate of $0.61. Our estimate implies $7.536 billion revenue (+54.2%) and a +77 Bps EBIT margin improvement versus LY. We’re forecasting Operating Income of $441.3 million (guidance range of $275 million to $365 million).
In Q2 2010, we’re forecasting EPS of $0.65 versus the current consensus sell-side estimate of $0.56. Our estimate implies $7.008 billion revenue (+50.7%) and a +80 Bps EBIT margin improvement versus LY. We’re forecasting Operating Income of $375.7 million.
In FY 2010, we’re forecasting EPS of $3.12 versus the current sell-side consensus estimate of $2.90. Our estimate implies $34.783 billion revenue (+41.9) and a +27 Bps EBIT margin improvement versus LY.
This entry was posted on Wednesday, April 21st, 2010 at 3:42 pm and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.