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Contributors: Douglas McIntyre Jon C. Ogg

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Tuesday, July 25, 2006

Previewing Amazon.com Earnings; Does UPS Signal Anything?

Stock Tickers: AMZN, UPS, YHOO, EBAY

Amazon.com (AMZN) is down 1.3% ahead of its earnings report today after the close. AMZN has had to endure a weak Yahoo! (YHOO) and a weak eBay (EBAY). Now this morning we have UPS (UPS) signaling weak international numbers and a fewer number of operating days, which is killing UPS and the other transport shares.

Well, guess who is a large shipper via UPS? You guessed it….Amazon.com is.

Does this signal that Amazon will also lower expectations? Who knows for sure, but it would make you suspicious. Amazon.com does have a unique model in that they do not physically warehouse most of their goods outside of books, CD’s, and DVD’s. They act as the clearing agent for merchants nationwide (and outside US) and these merchants use a myriad of shippers that essentially encompasses all major global shippers. If you order just a batch of new books, CD’s, or DVD’s it is likely to come from Amazon itself, and that is likely to come via UPS if you want any timeliness assurances.

The street is looking for $0.07 EPS and $2.1 billion in revenues for this quarter, and they are expecting $0.10 EPS and $2.22 billion revenues next quarter. It is unknown if Amazon.com will stick its neck out and offer annual guidance, but if they do the street is looking for $0.54 to $0.55 EPS and revenues just north of $10 billion. Options traders are bracing for a stock move in the vicinity of up to a range of $1.55 to $1.75 either way based on current prices, although it looks like the stock could move even more than that without them getting hurt too bad. The stock is also at the lower-end of the $33 to $37 trading band that has been in place for most of the four or five months, although it hasn’t really shown any real directional indicators.

We’ll have to see if UPS bleeds over to Amazon.com earnings or not. If Amazon.com doesn’t show the weakness, then you can likely blame eBay (EBAY) and retail for UPS. We’ll know in about five hours. We may also get to hear about Amazon search results and potentially will hear about its various download initiatives it wants to pursue, but you could have said the same thing in any of the last few quarters.

Jon C. Ogg
July 25, 2006
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