The question seemed settled.
This summer, Wall Street types finally seemed to tire of debating whether Internet retailer
would reach profitability soon enough to stay in business. With strong sales and a tight rein on costs, Amazon appeared ready to stamp itself a dot-com survivor. In fact, the news looked so good that the tight-lipped company publicly ventured it would break even, on a limited basis, for the first time ever during the fourth quarter.
But with the devastation of the Sept. 11 terrorist attacks, the debate on the company's financial health looks set to
resume. With the leisure industry in danger of collapse and consumer spending in full retreat, many analysts and investors expect Amazon to join the legions of companies missing financial targets for coming quarters. With the tragedies spurring investors to flee any stocks and bonds they deem risky, Amazon can hardly afford to come up short on its profit plans, regardless of how many alliances it arranges with the likes of
Part of the trouble lies in Amazon's distaste for giving Wall Street the numbers it craves. Unlike most retailers, Amazon doesn't release monthly sales data. Nor has it updated investors on its business in the wake of the attacks, as many retailers have done.
But there is good evidence that Amazon's sales will be hurt by the terrorist shock that dried up consumer spending. In the days immediately following the attacks, online buying fell dramatically, according to comScore Networks, a research group that tracks online retail sales. For example, on Sept. 11-12, overall online sales fell 58% from the prior week. Sales of books and consumer electronics, Amazon's two key categories, fell 45% and 58%, respectively. (comScore had already
reported this summer that July sales at Amazon fell 9% from June levels, raising the possibility that quarterly revenue would fall more sharply than the 3% predicted by analysts.)
With companies from
predicting their businesses will be hurt by the attacks, it's understandable if investors are feeling anxious about Amazon.
In fact, one analyst believes that comScore's data will force Amazon's hand. "It has the potential to change the way these guys do business," says Eric Von der Porten of West Coast money management firm Leeward Investments. (He owns put options on the stock, a bet that share prices will fall.) "I think it would almost force the company to more frequently report."
Meanwhile, the worry that the attacks will push an already anemic economy into full-scale recession -- which has led retailers from
Federated Department Stores
to drugstore chain
to slash earnings forecasts -- has many observers worried that Amazon, too, may be forced to reduce earnings and sales outlooks.
On Monday, Goldman Sachs analyst Anthony Noto lowered his annual e-commerce growth forecast to 25% from 35%-40%. For 2002, he cut his growth forecast to 15% to 20% from 25% to 30%.
Economists have been busy ratcheting down sales forecasts for the important holiday season. For example, even before the attacks, PricewaterhouseCoopers economist Frank Badillo was forecasting the worst holiday season in a decade. Following the tragedy, he lowered his retail sales-growth forecast for the fourth quarter to 1.5% from 2.5%. In addition, the National Retail Federation
sliced its holiday sales-growth forecast to 2.2% from the 4.5% it had predicted prior to the attacks.
The current consensus estimate calls for Amazon to lose 16 cents a share on revenue of $648 million. But with the economic outlook uncertain, some worry the company could cut its 2002 sales growth forecast below Wall Street's 19% target. "I think 19% is aggressive, especially since the balance of this year is likely to come in below current targets," says Von der Porten.
The company, which is scheduled to report third-quarter earnings on Oct. 24, has seen its share price fall about 13% since trading resumed Sept. 17. Shares closed Monday at $7.46, down 2 cents. The company didn't return calls seeking comment.
Another analyst says sales could be lower in the current quarter but remains confident that cost-cutting will allow Amazon to meet its earnings target.
The attacks "could potentially impact third-quarter revenues by up to 5%," Deutsche Banc Alex. Brown analyst Jeetil Patel wrote in a recent report. However, he kept his buy rating on the company and says that cost-cutting should allow Amazon to hit his targeted 16-cent-per-share loss. (His firm hasn't done recent underwriting for Amazon.)
The company, meanwhile, remains mum.