SAN FRANCISCO -- Amazon's ( AMZN) performance in the third quarter will hinge on whether it behaves like Google ( GOOG) in a down economy or takes its cues from eBay ( EBAY). Both Google and eBay talked about the strains caused by the economy in their earnings last week. But Google managed to beat estimates despite the downturn, while eBay offered a bleak outlook as a result of it. Now it's Amazon's turn to show how it will fare amid macroeconomic troubles. The online retailer reports its results after the closing bell Wedesday. Analysts predict earnings of 25 cents a share on revenue of $4.28 billion. Amazon has offered revenue guidance of a range between $4.2 billion and $4.43 billion. Since eBay is Amazon's closest rival, many analysts have been paying particular attention to its results. Although the online auction site edged out Wall Street earnings estimates for the third quarter, it fell short on revenue. eBay also expects a stronger U.S. dollar to hurt its businesses overseas in the fourth quarter, along with a slowdown in consumer spending during the crucial holiday season. Amazon may be subject to the same slowdown in consumer spending, which can already be seen in deteriorating e-commerce. Jeffrey Lindsay, an analyst for Sanford Bernstein, pointed out in his research that overall e-commerce numbers in the U.S. continue to decelerate throughout the third quarter, growing only 6.4% year over year, down from a 12% increase in the first half of the year and far lower than the 20.2% increase seen in 2007.
Nonetheless, Lindsay noted that Amazon has outperformed the e-commerce industry in the past and can do so again. For instance, Amazon's revenue in North America grew 33.2% in the first half of the year compared with 37.9% for the same period a year ago. "If a similar level of outperformance holds up in the third quarter, we would expect Amazon's North American revenues to increase by 28%," he wrote. As for any correlations with eBay, Lindsay maintained they are somewhat overblown. "Compared to eBay in particular, Amazon's outperformance has also been consistent and increasing," he said, pointing out that Amazon's year-over-year revenue growth, discounting foreign-exchange impacts, has beaten eBay's in the four most recent quarters. Barclays analyst Doug Anmuth, however, takes a different view, lowering his third-quarter and forward-looking estimates ahead of Amazon's earnings in part because of what happened to eBay. "We continue to believe Amazon is one of the best franchises in the Internet sector but that fourth quarter and 2009 Street estimates are too high and need to come down given foreign exchange headwinds and a worsening macro," he wrote in his research. "eBay's fourth quarter outlook has lowered the bar for the e-commerce sector some, but Amazon's recent record of outperforming e-commerce and peers could mean that hopes remain too high for this stock in the near-term, despite recent sell-off." Indeed, Amazon's stock, which has fallen 49% from its 52-week high, has gotten hammered as concerns over consumer spending heighten, especially given the current financial crisis. eBay's results have only added to that.
"We believe eBay's comments that macro-economic weakness began to impact sales in mid-August and has persisted into the fourth quarter are lowering investor expectations around Amazon's results and outlook," Anmuth said. "It is becoming apparent that no company is immune from this downturn, and while we believe Amazon should continue to outperform broader retail and e-commerce, we think it will be impacted by the tough environment." On the other hand, Google, which by its CEO's own acknowledgment is not recession-proof, managed to exceed expectations in its third quarter, buoyed by continuing growth of its online search ads. Google is admittedly not Amazon in terms of its business model, but it has bucked the trends in its industry, much like Amazon. Although overall online advertising has been feeling the pressure of an economic decline, Google's search technology has proved superior to its rivals, making it a must-have for both users and advertisers. Likewise, Lindsay argues that because of Amazon's superior standards, it can blow away the competition, including eBay, which he maintains overstated the effects of the economy on its results and suffers from its own unique set of problems. "We believe investors' concerns about the negative read-across from both e-commerce in general and eBay in particular are unfounded, especially given the history of Amazon consistently growing faster and taking share from competitors," he wrote in his research. "We have no reason to expect that trend to end during the current challenging economic environment."