- ChannelAdvisor has announced its May 2014 same store sales report of various online companies.
- Using historic relationship between ChannelAdvisor numbers and Actual revenue growth reported we model the June 2014 performance required to report in line with Q2 guidance.
- Amazon looks all set to beat Q2 2014 revenue guidance.
- However, we reiterate our negative outlook on Amazon stock due to the unproven ability of Amazon to deliver earnings growth priced into the current valuations.
ChannelAdvisor, the provider of e-commerce support services, yesterday came out with its latest e-commerce report of comp sales for the month of May 2014. The report showed an improvement in same store sales for Amazon (NASDAQ:AMZN) as Ebay (NASDAQ:EBAY) saw a decline in the Y/Y comparisons.
ChannelAdvisor’s latest e-commerce report on same store sales showed a strong performance from Amazon, which saw its same store sales increase by 28.1% in the month of May 2014. The ChannelAdvisor revenue growth numbers for Amazon have a correlation of .9 with the actual numbers reported by the company, as highlighted in a post on Seekingalpha. Hence these are numbers which can be used to predict how the current quarter could shape up for the gigantic e-retailer. Apart from this the author also highlighted how the relationship between the ChannelAdvisor same store sales (sss) and the actual revenue growth rates have stabilized at a value of 1.05. The chart below displays the ratio of ChannelAdvisor sss to actual revenue growth reported by Amazon.
The above mentioned relationship was further confirmed by the latest quarter (Q1 2014) reported by Amazon, which saw a ChannelAdvisor sss to actual revenue growth ratio of 1.09, as highlighted in the table below.
|ChannelAdvisor sss (Y/Y growth)|
|Q1 2014 projected growth||21.1 %|
|Actual growth reported for Q1 2014||23.0 %|
|Ratio of CA sss/actual growth||0.92|
How Is Q2 2014 Shaping Up For Amazon?
Going by the ChannelAdvisor report, May 2014 was the best performance from the e-retailer in over the last year or so. Amazon has guided Q2 2014 revenue in the range of $18.1-19.8 billion, which at its midpoint of $18.95 billion implies a Y/Y growth rate of 20.7%. Let’s now take a look at what Amazon needs to do in June 2014 to report Q2 2014 in line with guidance.
ChannelAdvisor sss (Y/Y growth)
|Q2 2014 projection (guidance *1.08)||22.36%|
|Guidance (Y/Y growth)||20.70%|
We use revenue range midpoint of Amazon’s guidance to arrive at the Q2 2014 projection as per ChannelAdvisor sss using a multiplying factor of 1.08 (From LTM numbers). The Q2 2014 projection comes to 22.36% Y/Y increase in ChannelAdvisor sss in Q2 2014, implying a June 2014 Y/Y change of 12% in the ChannelAdvisor sss numbers.
Amazon will have to report its worst monthly performance in the last twelve months in order to miss its guidance midpoint. The company had a 30% Y/Y change in the ChannelAdvisor sss in June 2013, making it one of the strongest monthly performance of 2013. Hence we expect Amazon to report closer to the upper limit of its guidance range, if not beat the top end of its guided revenue range.
Amazon will, in all likelihood, beat its Q2 2014 guidance comfortably, but will that be enough to soothe investors who are increasingly demanding an earnings focused model? That is a question which remains to be answered, but given the expectations priced into the current stock price, a failure to deliver earnings growth could hurt investors entering into the stock at its current valuations. As per our Amazon stock analysis, we reiterate our negative outlook on AMZN stock. We see risks surrounding Amazon’s ability to deliver and sustain earnings growth, which is a different ball game from their current strategy of chasing topline growth.
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