Amazon.com, Inc. (NASDAQ:AMZN) is set to post its third quarter earnings performance today after the market closes. For six straight quarters, Amazon has posted better profit margins than the consensus estimate, which is likely to be the case this time as well. Analysts from Bernstein Research expect revenue to come in at $16.99 billion compared to the $16.76 billion consensus estimate.
Possibility of negative correction low for Amazon
Analysts expect that there is a low possibility of any major negative correction even if Amazon.com, Inc. (NASDAQ:AMZN) does not post numbers in line with the estimates. Profitability will be in accordance with the top line estimates if Amazon posts better than expected revenue or as per the expectation. On the other hand, profit margin will balance some downside if the company misses top line numbers. “We have moderate-to-high conviction at the gross profit level, but less conviction at the EBITDA or op. income levels since there are so many moving parts in the P&L,” believe analysts.
Analysts are expecting fourth quarter 2013 revenue of $26.0 billion compared to the consensus estimate of $25.88 billion and non-GAAP EBITDA of $2.26 billion, which is far more than the consensus of $1.64 billion.
Gross margin analysis
Analysts note that consensus has not predicted the evolution of gross profit in an apt manner. Analysts believe that it is still lagging behind current the quarter by around 30 bps and expect that consensus gross profit margin will possibly be low. Gross profit is estimated to be 27.9% against a consensus estimate of 27.6%. The company is expected to earn an EBITDA of $1.11 billion versus the consensus estimate of $1.02 billion.
Additionally, analysts feel that consensus has taken 3P and AWS as key growth drivers of gross profit margin, but there are other significant catalysts which have not been covered by consensus, such as recent expansion of 1P gross profit margins. Gross profit margin for Amazon is expanding faster than usually expected, backed by surging scale and purchasing power in more categories, such as CPG and apparel subcategories, along with countries such as Italy and Spain.
The gross margin of Amazon.com, Inc. (NASDAQ:AMZN) is also impacted by sales tax collection in the larger states in the U.S. such as Texas, California and Virginia where the company has opened fulfillment centers. Amazon.com, Inc. (NASDAQ:AMZN) has come up with its fulfillment center infrastructure faster than revenue, unit or gross profit growth because it wanted to improve after investing almost nothing in infrastructure in 2009, and to to assist global expansion in Spain, Italy and China.
