Amazon (AMZN) Q4 Earnings Preview: Risk to Outlook

Amazon (AMZN) reports this evening, with the call at 5PM EST, 2PM PST.  The stock has been thrashed in fear of economic weakness and a lack of catalysts through the winter and spring. Q4 and 2008 earnings expectations are still high relative to guidance, however, with the upside expected to come from operating leverage.

Given economic weakness, the outlook will be as important as the quarter. The street was frustrated last quarter, because Amazon's outlook suggested that the profit margin was peaking.  Bulls viewed this as simply conservative guidance, and the consensus EPS estimate for 2008, $1.63, assumes additional operating margin improvement. The outlook for margin, therefore, will be as important as the one for revenue.

After modeling the quarter in detail, we think there is risk that Amazon's 2008 outlook, EPS especially, will be below analysts' current forecasts.

Consensus for Key Metrics

• Revenue: Consensus of $5.38 billion, up 35% (a deceleration) at high end of guidance range ($5.1 billion-$5.45 billion). Some upside possible here.
• EPS: Consensus is $0.48 (whisper $0.49) vs. guidance of about $0.41.
  
• Operating Profit: about $310 million vs. guidance of $221-$291
  
• Operating Margin: 5.75%, up about 1 point
  

Current outlook:

• Q1: $3.95 billion / $0.35
  
• 2008: $18.3 billion / $1.63

See Also:
SAI Spreadsheet: Amazon Financial Analysis