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Amazon’s International Strategy?

Posted on Friday, Oct 24th 2008

The economic recession is hitting retail stocks worldwide. The recent announcement of Amazon’s (AMZN) results did not bring much cheer to the market either.

Their revenues of $4.3 billion for the quarter were in line with the market’s expectations, and recorded a 30% increase over the year. EPS for the quarter slipped to $0.27 compared to $0.37 in the previous quarter. The market was looking for EPS of $0.25. Over the year, EPS grew by 42%.

Segment wise, Media revenue increased to $2.49 billion, up 19% and Electronics and other General Merchandise revenue increased by 52% to $1.64 billion.

In some of their key metrics, Prime membership grew by over 70% from the previous year. Active customer accounts grew by 17% to cross 84 million and active seller accounts grew by 17% to over 1.4 million. Seller units remained constant at 31% of total units.

Going forward, they expect net sales of $6-$7 billion, recording a 6-23% growth and GAAP operating income of between $145-$305 million, or between 46% decline and 13% growth. For the calendar year 2008, they expect net sales of between $18.46-$19.46 billion, a growth of between 24% and 31%. For the year, GAAP operating income is expected to be in the range of $716-$876 million, or a growth in the range of 9-34%.

Despite economic concerns, they launched a French version of Amazon Prime on 1st October. During the quarter, they also opened three fulfillment centers in the quarter. They identified weakness only in sales of items priced over $1,000. In general, Amazon’s international presence needs to be enhanced greatly. As you know, I have recently done a book deal with Amazon. The biggest weakness of that deal is the lack of international distribution capabilities. I have demand from India, Singapore, Europe, Israel – but we cannot yet fulfill.

Anyway, to tackle the margin pressures, they are expecting Kindle to be a strong business driver.

They continued to invest in the business and launched a flexible payment service designed for software developers to be able to design and build their own payment services, or to deeply integrate payments into whatever application they happen to be building. They launched Checkout by Amazon and Simple Pay for merchants on third-party websites to be able to incorporate Amazon payments into their websites so that their customers can use their Amazon credentials when checking out. eBay’s acquisition of BillMeLater, however, was a blow to Amazon’s plans for the payment industry.

The stock, however, crashed to a new 52 week low of $43.31 yesterday, but recovered to close at $50.32. Amazon still remains one of my absolutely favorite companies. Look out for buying opportunities, especially as the market is likely to bottom in the next few weeks.

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