Amazon.com, Inc. (NASDAQ:AMZN) will report its second quarter 2013 results today, in which investors will mainly be concerned with WW unit growth, which has been on the decline for four continuous quarters, according to a report from Morgan Stanley (NYSE:MS) by analysts Scott Devitt, Stephen Shin and Nishant Verma. According to the report, some macro economic factors, mainly in Europe, have some potential to effect the second half.
Amazon may face international headwinds
In the report, analysts stated that they are expecting an increased pace in unit growth to 31 percent from 30 percent in CQ1, with limited upside potential in the quarter. Amazon.com, Inc. (NASDAQ:AMZN) has potential to succeed globally in the long term, but the top line should exhibit significant improvement from the present investment over the past quarters. However, analysts hold the view that any positive sign will be good for the company.
Morgan Stanley does not expect any significant positive or negative changes from Amazon.com, Inc. (NASDAQ:AMZN)’s U.S. GMV growth, although according to ComScore, e-commerce growth surged in the United States in the second quarter, and analysts are also looking at eBay’s U.S. performance, where GMC growth surged by 70 basis points.
However, analysts noted that eBay posted second quarter results in line and below par third quarter guidance, due to macro weakness in Europe. This suggests that there are possibilities that Amazon may face a similar downturn. Europe accounts for 58 percent of Amazon.com, Inc. (NASDAQ:AMZN)’s international revenue.
Value drivers
In their research notse, analysts mentioned the reason for growth will be Paid unit growth in Amazon.com owned inventory and 3P. The second driver they suggested is International sales, which will have deeper penetration compared to domestic sales due to demographics.
In the long run, analysts are still confident in Amazon and gave an Overweight rating for the company based on three factors, the first of which is that the market share of global retail sales for Amazon still seems to be small. Second, Amazon Prime and its implementation are main strengths and should drive customer adoption. And third, AWS will be more significant to overall results.
Potential catalysts and risks
Amazon.com, Inc. (NASDAQ:AMZN) could face negative effects from transforming music and audio sales to digital from physical music due to the increased success of Netflix, Inc. (NASDAQ:NFLX) and Apple Inc. (NASDAQ:AAPL). Analysts also said another catalyst will be an increasing shift from offline to online retail sales. Sales tax enforcement of e-commerce and further acceptance of the Kindle e-reader in the global market could also act as potential catalysts.
Analysts suggested certain risks to the current target, like competition threats from Apple and other media firms, and Investment should be greater than expected in order to gain traction in other markets, primarily China.
