AMZN Preview: Expectations Are Subdued

Amazon (AMZN - commentary - Cramer's Take) is set to report earnings Wednesday after the close. Consensus estimates are for EPS of 26 cents on revenue of $3.96 billion. Amazon has been pretty good at executing and has not missed consensus expectations in the last five quarters. I think there is a good chance that the company reports in line again, or possibly a penny ahead if international growth remained strong.

Given the overall economic slowdown and muddled online results from companies like eBay (EBAY - commentary - Cramer's Take), expectations for Amazon are fairly subdued. One of the keys to the call will be how the company is faring given the above, how its customers spending habits/patterns have changed given high gas prices, etc., and how much Amazon has sacrificed margins to keep traffic high. Also, have high fuel prices cut into Amazon's profitability, in terms of shipping costs?

During the quarter, the company launched TextBuyIt, which allows customers to compare products and make purchases via text messages. I use the site a lot but have not tried this feature, and I am curious as to how well it is being adopted. Amazon also lowered the price of its Kindle e-reader, which I have heard is selling pretty well. And the company's third-party sites are also a key focus for the conference call, as well as continued rollouts of new features in the international markets.

Management often updates its full-year guidance around this time of year, often taking it higher as the company usually remains conservative in the first half of the year. But given the cloudy macro environment, I expect management to remain more cautious this time around, and thus, I think Amazon will be more likely to reiterate full-year guidance given last quarter ($19.1 billion to $20.0 billion in revenue) as opposed to raising its outlook.

As for the stock, it is down since its early June highs, in sympathy with its peers. So that is not a surprise. But it still sports a lofty valuation, trading at 44 times estimated 2008 EPS. In a slowing economy, it's hard to see how this company continues to justify such a premium relative to its peers. More likely, the stock will tread water in a trading range for a while until valuations ease a bit.

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At time of publication, Kahn had no positions in the stocks mentioned.

Jordan Kahn, CFA, is a portfolio manager with Bevery Investment Advisors, a Beverly Hills, Calif., money manager. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Kahn appreciates your feedback; click here to send him an email.