Amazon Sees Holiday Quarter Sales Rising 10-25 Percent
Amazon’s addition of “millions” of new Amazon Prime customers in the past 90 days should bode well for revenue growth “given the tendency of Prime members to spend more on the site than non-Prime members,” said Bank of Montreal Capital Markets analyst Edward Williams after Amazon’s Q3 earnings call Thursday. Amazon’s Chief Financial Officer Tom Szkutak said on the call that retention of Prime members has been strong and those shoppers are doing more “cross-shopping” among the company’s various offerings.
On purchase minimum increases for non-Prime members of $25-$35 announced earlier this week, Szkutak noted that in the 10 years that the $25 free shipping minimum has been in place, transportation and fuel costs have increased “significantly,” and the increase “was the right thing to do.” Addressing Amazon’s recently launched “Log in and Pay” program -- which allows customers to use payment information stored at Amazon to pay for goods at other websites -- Szkutak called it an “interesting opportunity” to monetize over time based on Amazon’s large customer base.
BMO’s Williams saw “solid growth prospects” in the near term for Amazon as it invests in new businesses, gains e-commerce market share, grows Amazon Web Services and reaps benefits from the Kindle ecosystem, but he cautioned that “heavy spending is hampering profitability” and pressuring margins.
Wedbush Securities predicted continued pressure on Amazon’s margins as it builds out its Prime Instant Video catalog. Wedbush analyst Michael Pachter estimated Amazon’s annual spend on streaming video rights is above $1 billion, compared with Netflix’s outlay of $2 billion plus for its streaming rights. Wedbush maintained a neutral rating on Amazon Friday on “little confidence in its desire to provide investors with a strategy road map,” Pachter said. “We are not convinced it will share sufficient details about spending plans to allow us to accurately model profit growth,” he said, saying it could be “a long time” before Amazon’s earnings-per-share grow enough to justify share price.
Amazon said it added 8 million square feet of fulfillment center capacity during Q3, and it deployed 1,382 Kiva robots in three of the centers. Amazon currently operates seven fulfillment centers, which include “several consolidations,” Szkutak said. On expansion plans for Amazon Locker, which allows consumers to have products shipped to secure locations in certain markets, Szkutak said “it’s early” and “limited.” Over time the company will take a closer look and “certainly expand if it makes sense to do so on behalf of customers,” he said.
Amazon’s net sales increased 24 percent to $17.09 billion in Q3, compared with $13.81 billion in the year-ago quarter. The company’s operating loss for the quarter narrowed to $25 million, from $28 million in Q3 2012. For Q4, Amazon expects net sales of between $23.5 billion and $26.5 billion, or growth between 10 and 25 percent, Szkutak said. Amazon shares closed 9.5 percent higher Friday to $363.67.