- Strong Q Expected. We expect Amazon to report a better than expected quarter due to strong eCommerce trends, strong sales from Harry Potter, higher third-party unit sales, and improving incremental margins. As such, we are increasing our 3Q revenue estimate from $3.130 billion to $3.170 billion, pro forma operating income increases from $148 million (4.7% margin) to $157 million (4.9% margin), and GAAP EPS increases from $0.17 to $0.18. Our estimates are towards the high end of company guidance on revenue and operating income.
- Accelerating Revenue Growth & Improving Margins. Our revenue estimate represents an acceleration of revenue growth for the quarter as Amazon continues to benefit from several factors including: 1) the continual shift of retail to the Internet; 2) free shipping and lower prices which are driving unit sales; 3) expansion of categories; 4) expansion of the 3rd-party business to the international markets; and 5) residual sales from drawing users to the site for video and song premiers from various musical artists, and for the digital services. These factors are driving what could be the second consecutive year of revenue growth acceleration for Amazon. The strong revenue growth along with the improving operating margins aided by the deceleration in tech opex and higher third party mix, have resulted in a share price for Amazon that has more than doubled year-to-date.
Three key takeaways for me:
- higher third-party unit sales
- expansion of categories
- expansion of the 3rd-party business to the international markets
Amazon has found the Holy Grail of online shopping Third-Party Sellers and they are expanding categories and opportunities to reach out to this large and valuable group. Amazon is no longer just a media seller, they are a growing shopping marketplace because of the breadth of product that 3rd Party sellers bring to the site.