- ChannelAdvisor same store sales data for Q2 2014 suggests Amazon toppling revenue estimates for the quarter.
- However, the stock’s movement post Q1 2014 earnings suggests investors might be beginning to value earnings growth over revenue growth.
- The company has taken various steps to boost bottomline over the last two quarters.
- We re-iterate our negative long term outlook on Amazon stock, with concerns surrounding the company’s ability to deliver significant earnings growth.
ChannelAdvisor last week announced its June 2014 same stores sales (SSS) report for the e-commerce sector. The report, as noted in our earlier post on Amazon sales and ChannelAdvisor reports, is a fair indicator of the performance of the top e-commerce players like Amazon (NASDAQ:AMZN) and Ebay (NASDAQ:EBAY). In context of the report, we today look at what is in store for us in Amazon’s Q2 2014 earnings release, which is scheduled on July 24 after market hours.
Potential Revenue Beat In Q2 2014
Our earlier article on Amazon’s Q2 expectations showed there is a stable relationship between the ChannelAdvisor historical sales data and the numbers reported by Amazon.com over the same time periods. The ratio of ChannelAdvisor SSS to Amazon revenue growth had stabilized at 1.1:1 over the last two quarters of 2013. The ratio in Q1 2014 is given in the table below.
|ChannelAdvisor sss (Y/Y growth)|
|Q1 2014 projected growth||
|Actual growth reported for Q1 2014||
|Ratio of CA SSS/actual growth||
The ratio for Q1 2014 was once again lower than the previous quarters, showing that we might be heading to a long term ratio of 1 between ChannelAdvisor data and Amazon reported Y/Y revenue growth. However, considering the fact that Q2 2013 was the first quarter consisting of the ebook accounting change, the base revenue will be more comparable, pushing the ratio back towards its historical levels higher than 1.1:1. ChannelAdvisor has reported SSS numbers for Amazon as 27%, 28.1% and 34.4% in the months of April, May and June 2014 respectively. Using the numbers reported we modeled Amazon’s Q2 revenues under various scenarios using different ratios of ChannelAdvisor SSS/Actual revenue growth.
Amazon Q2 revenue expectations
|Average CA SSS/Amazon actual growth last 4 quarters||
|Amazon CA SSS in April||
|Amazon CA SSS in May||
|Amazon CA SSS in June||
|CA SSS growth in Q2 2014||
|Projected growth at CA SSS to Actual revenue growth (CA SSS:ARG) LTM ratio of 1.08:1||
|Projected growth at Q1 2014 (CA SSS:ARG) ratio of 0.92:1||
|Projected growth at (CA SSS:ARG) ratio of 1.25:1||
|Projected growth at (CA SSS:ARG) ratio of 1.4:1||
|Projected growth at (CA SSS:ARG) ratio of 1.5:1||
Amazon has guided to Q2 2014 revenue in the range of $18.1 billion to $19.8 billion, implying a Y/Y growth range of 15% to 26%. At its midpoint of $18.95 billion, the guidance projects a Y/Y revenue growth of 20.7%. From the above table it is clear that Amazon will beat the guidance midpoint as long as the (ChannelAdvisor SSS: Amazon actual revenue growth) ratio does not cross 1.4:1.
However, Amazon Q2 2014 consensus estimate according to Bloomberg Businessweek, is a loss per share of 15 cents on a revenue of $19.3 billion, implying a revenue growth of 23%. From the above table, Amazon will beat analyst expectations as long as the ChannelAdvisor SSS to Amazon revenue growth ratio is not more than 1.25:1.
Are Amazon Investors Demanding Earnings Growth?
As seen from the above numbers, there is a high likelihood of Amazon beating the revenue estimates and guidance. However an important question is whether or not that will be enough? In our Q1 2013 Amazon earnings review, we had highlighted the negative investor sentiment prevalent in the market inspite of the revenue beat in Q1 2013. The stock is up 5% since reporting Q1 numbers trailing the NASDAQ composite gains of 7%, which once again highlights the change in investor expectations.
Amazon has also made various moves over the last two quarters which suggest a shift to earnings focus. Examples of such moves have been the raise in the Amazon Prime membership fees and the pricing of the Amazon Fire phone. The recent moves by Amazon are more earnings growth centric, suggesting the company has finally decided to focus on its bottom line rather than its single point focus on revenue growth.
We continue to re-iterate our negative outlook on Amazon stock ahead of its Q2 2014 earnings release, citing concerns on earnings growth. Our Amazon stock analysis, assigning Amazon a rating of 2/5, highlights our concerns with regard to the stock.