Tahminah blog

Amazon investors to gauge margin toll in results

SAN FRANCISCO (Reuters) – Amazon.com (AMZN.O) is expected to post impressive fourth quarter sales results on Thursday, fueled by momentum throughout the key holiday season, but Wall Street will be closely watching for clues about profit margins in 2011.

The world's largest online retailer has posted revenue gains of at least 39 percent in the past three quarters, and shares reached all-time highs last week, reflecting Wall Street's high expectations.

But the company is expected to provide a first glimpse at its profit expectations for 2011, which could show that investments and a focus on driving revenue, rather than profit, will continue to temper margins.

Analysts are hoping for some kind of payoff on a period of investment in 2011 that took Wall Street off guard in the second quarter of 2010. The company invested in new distribution centers to expand capacity and investors are now hoping for a payoff to that added scale.

For a look at revenue versus operating profit, click here:http://graphics.thomsonreuters.com/11/01/US_AMZNPVW0111.gif

Amazon has historically brushed off criticism about margin growth and focused on building its revenue base through loyalty programs, such as its Amazon Prime program that charges $79 per year for unlimited free shipping. Such deals, it argues, ensures that customers buy more products and turn to Amazon as its default online retailer.

Barclays Capital analyst Douglas Anmuth said recent positive results from Google Inc (GOOG.O) and eBay (EBAY.O) pointed to overall e-commerce strength in the holiday quarter.

"We believe Amazon needs to report revenue at least at the high end of guidance ... even with some recent pullback in the shares," he wrote, adding that he expected margins to expand in the second half of 2011.

The company -- whose Kindle e-reader is considered the best-selling such device in the market -- also operates a web-hosting business and offers other services to businesses, such as fulfillment.

Regardless of how shares react to Thursday's disclosures, many will continue to see Amazon as overvalued.

The company's stock price is 70 times expected 2011 earnings, far exceeding that of competitors in both the technology and retail sectors.

Analysts, on average, expect fourth-quarter revenue of $12.99 billion on earnings of 88 cents per share, according to Thomson Reuters I/B/E/S.

For the first quarter, Wall Street expects operating profit of $469 million on revenue of $9.31 billion. For full-year 2011, analysts expect operating profit of $2.2 billion on revenue of $44 billion.

Amazon does not give an outlook for earnings per share, focusing instead on an operating profit range.

(Reporting by Alexandria Sage)