Amazon.com Already Beat Earnings, Unofficially (AMZN)

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Amazon.com Inc. (NASDAQ: AMZN) did not sell off after it announced the acquisition of Zappos.com.  The deal was north of $800 million, and with shares up 5% Amazon now has a market cap of $40 billion.  Usually companies making acquisitions sell off by close to the same amount of dilution, but the difference is that this buyout was announced just 24-hours ahead of Amazon’s quarterly earnings report.  Since the Zappos.com buyout was almost all in stock, what are the odds that management took the risk of not being comfortable with the post-earnings reaction?

Thomson Reuters has consensus estimates at $0.32 EPS and $4.69 billion in revenues.  The whisper numbers are higher and we have some thought that the unofficial target is now closer to the top of the range of earnings around $0.36 EPS.  Ditto for revenues, which would be closer to $4.8 billion.

The company gave the following guidance at its last quarter report: Revenue range of $4.30 to $4.75 billion (6% to 17% growth over a year ago); operating income between $110 to $190 million (a drop of 49% to 12%), but that drop includes a unit sale a year ago and includes approximately $90 million for stock-based compensation and amortization of intangible assets.

After earnings, investors are going to look for guidance immediately.  For next quarter, Amazon is expected to post $0.32 EPS and $4.92 billion in revenues, and for fiscal 2009 it is expected to post $1.64 EPS and $22.41 billion in revenues.  That puts the forward valuations today at just under  2-times revenues and at 57-times earnings.  While this sounds expensive on earnings, part of that is because of growth expectations.  Analysts have targets $2.06 EPS and $26.47 billion in revenues for all of 2010, which comes to an expected 25% earnings growth and 18% revenue growth.

Options traders are now braced for a move of $5.00 or $5.50 based upon mid-day snapshots.  The three closest open interest call options had only about 26,000 contracts listed as being in the open interest today, but we have seen more than 75% of that same number trade in contracts today.

As the stock is at a 52-week high, there is no reason to offer much in the chart analysis.  Its 52-week range is or was $34.68 to $91.75. The most recent short interest is over 20.6 million, which is actually only about 2.7 days coverage.  And for the pesky Wall Street analysts, for them to keep their bullish ratings they are going to have lift their price targets further.

Our stance here is that Amazon.com unofficially telegraphed that it was going to beat earnings and/or at least have strong guidance.  If the company manages to disappoint when everyone else has been performing very well, let’s just say that there would be more than just a disappointment.

JON C. OGG