Amazon: It's All About the Margins
NEW YORK (TheStreet) -- Amazon(AMZN) gets set to report first-quarter earnings after the close of trading, and investors will be looking to see whether the Internet giant's margins are improving.
In the fourth quarter, Amazon reported operating margins of 1.5%. That's down sharply from 3.7% during the same period last year, as return on invested capital fell to 22% during the quarter, from 34% in the fourth quarter of 2010.
The Seattle-based online retailer has been expanding into seemingly every business over the past few years, as it tries to drive people to its website to buy more products.
Amazon has been the only company outside of Apple(AAPL) to gain success with its tablet strategy, having launched the Kindle Fire in November 2011. The goal of Amazon's tablet effort is to drive sales on its website, albeit at very low margins.
Last quarter's big revenue miss during the all-important holiday season, however, sparked concerns over whether Amazon's all-encompassing strategy will pay off.
Raymond James analyst Aaron Kessler isn't concerned about revenue growth, but margins are making him take a wait-and-see approach. "Based on our checks and industry data points, we expect strong top line growth for Amazon in 1Q," Kessler wrote, in a research report. "While we remain positive on the secular outlook for Amazon, near term continued uncertainty around timing of margin improvements keeps us on the sidelines." The analyst rates Amazon shares "market perform."
Analysts polled by Thomson Reuters expect Amazon to report earnings of 7 cents a share on $12.899 billion in revenue. Independent analysts polled by Estimize expect Amazon to report earnings of 11 cents a share on $13.03 billion in revenue.
Amazon CEO Jeff Bezos is no stranger to spending the company's cash if he believes it will help the business long term, and it's hard to argue with that strategy, given the share price performance over the past five years. Amazon shares have gained 332.53%, versus a 21.57% return for the Nasdaq.