Amazon Q2: Revenue In Line, EPS Boosted By One-Time Gain (AMZN)*

I think you are doing your math wrong because all you are doing is subtracting the $53 million off of the net income when you actually would need to recalculate the tax as well when you exclude the gain. Doing this I come up with an EPS of $0.27.

Amazon forecast operating income for the second quarter in the range of $120 million and $160 million. $198 million was the Q1 operating income. Where do you get your numbers from?

Well man ..

Yes, you're right. Transposed the wrong guidance numbers and shouldn't have tried to back out the $53 M from EPS w/out accounting for taxes. I've updated the post. Apologies for the errors. Peter Kafka

The tax rate for the quarter was way lower than expected, but completely dsicounted by AMZN management during the Conference Call as seen below: STEVE WEINSTEIN Great. Thanks. I just have an accounting question. If we want to back out the $53 million gain for the sale of the DVD business, what would the offsetting tax impact be for that? TOM SZKUTAK I can't talk to the tax piece. I guess the best way to say it is the estimate for the year is 28%. And you see a first-half effective tax rate of 26%, and that gain is reflected in the first-half results and the 26% effective tax rate. So, again, our estimate for the year is 28%." The tax rate for 1Q08A was 30.2%, or ~$60M on EBIT of $198. If the tax rate for 1H08A was only 26% and 2Q08A EBIT, excluding the $53M non-cash DVD charge and $17M in FX, was $147M, then backing into the tax rate $345M * 26% = $90M 2H08A tax - 1Q08A tax of $60M, equals ~29M tax on EBIT of $147M, implying a tax rate of ~20%. Consensus estimate modeled a tax rate of 30%, or $44M of adjusted EBIT, which is $15M higher than actually reported, resulting in the diluted EPS being inflated by ~$0.035 cents. This is completely back of the envelope... but I feel that this, coupled with the fact that 2008E EBIT has a Y-o-Y growth rate range of 14% to 40% growth, is really misleading to investors. Someone please comment.

The tax rate for the quarter was way lower than expected, but completely dsicounted by AMZN management during the Conference Call as seen below: STEVE WEINSTEIN Great. Thanks. I just have an accounting question. If we want to back out the $53 million gain for the sale of the DVD business, what would the offsetting tax impact be for that? TOM SZKUTAK I can't talk to the tax piece. I guess the best way to say it is the estimate for the year is 28%. And you see a first-half effective tax rate of 26%, and that gain is reflected in the first-half results and the 26% effective tax rate. So, again, our estimate for the year is 28%." The tax rate for 1Q08A was 30.2%, or ~$60M on EBIT of $198. If the tax rate for 1H08A was only 26% and 2Q08A EBIT, excluding the $53M non-cash DVD charge and $17M in FX, was $147M, then backing into the tax rate $345M * 26% = $90M 2H08A tax - 1Q08A tax of $60M, equals ~29M tax on EBIT of $147M, implying a tax rate of ~20%. Consensus estimate modeled a tax rate of 30%, or $44M of adjusted EBIT, which is $15M higher than actually reported, resulting in the diluted EPS being inflated by ~$0.035 cents. This is completely back of the envelope... but I feel that this, coupled with the fact that 2008E EBIT has a Y-o-Y growth rate range of 14% to 40% growth, is really misleading to investors. Someone please comment.

You did your research well. Bravo.

Get your numbers right before you post. It's embarrassing dude. Change your headlines to read: "Amazon Q2: Revenues trounce estimates; EPS soar"

cool

hmm

"Yes, you're right. Transposed the wrong guidance numbers and shouldn't have tried to back out the $53 M from EPS w/out accounting for taxes. I've updated the post. Apologies for the errors. Peter Kafka" Where is it updated?

They missed by 2 cents... managment has completely misled investors. Here's how: If the $53M gain, which caused the non-recurring income resulting in the lowered tax rate, didn't exist (and should be, as well as any affects it may cause, stripped out of analyst models), then the EBIT, excluding FX effect, of $147M would have been taxed, as forecast by analysts, at a 30% rate, resulting in an EPS of $0.24, which is ~$0.02 below consensus. How can you strip out the one-time gain and not make a proforma adjustment to the tax rate, for the most "apples to apples" basis?

if the $53M gain, which caused the non-recurring income resulting in the lowered tax rate, didn't exist (and should be, as well as any affects it may cause, stripped out of analyst models), then the EBIT, excluding FX effect, of $147M would have been taxed, as forecast by analysts, at a 30% rate, resulting in an EPS of $0.24, which is ~$0.02 below consensus. How can you strip out the one-time gain and not make a proforma adjustment to the tax rate, for the most "apples to apples" comparison?

Upon further review, the company's 3Q08E EBIT guidance (excluding $80M stock-based comp expense / amortization) of $195M - $240M is 25% to 2% below analyst consensus estimate of $244M. The company's full-year EBIT estimate HAS A $175M gap, ranging from growth of 14% - 40%... Yet net sales are expected to grow between 30% and 35%..... management is baking in for a much greater probability of margin compression than expansion. This, all coupled with the fact that the ~5-6% margin company trades at a 53X P/E multiple (compared with an industry average of ~30X) and has seen it's FCF, which was only increased 16% (compared to a "71%" EBIT increase excluding FX effects, show a sequential downwards trend and yet has its stock trade up 12% in after hours perplexes me. Management completed dodged the question regarding the effects of the increase in oil prices on its margins. When asked about the specific impacts of the increase in oil expenses - "Could I ask two questions? First, what is the likely impact on your delivery and fulfillment charges, particularly with regard to Prime, of increased transportation costs? Is this really a 2009 phenomenon for you or is there a possible increase in delivery costs coming through the pipeline?" Management stated "This is something that we've been dealing with for quite some time. It's part of our overall cost structure. We started in the US, some of the free shipping offers back in 2002, I believe. Oil prices were around $22 a barrel back in 2002. They've continued to grow. And certainly, it is more costly, but it's not something that's really new to us. It's part of our overall thinking as we look at our costs." ... this doesn't answer the question if the rising upward trend in shipping costs, which increased 38% quarter over quarter and increased from 2.6% of sales to 3.6% of sales (I would assume the opposite w/ the economy of scales leverage / cost savings) will continue?

Upon further review, the company's 3Q08E EBIT guidance (excluding $80M stock-based comp expense / amortization) of $195M - $240M is 25% to 2% below analyst consensus estimate of $244M. The company's full-year EBIT estimate HAS A $175M gap, ranging from growth of 14% - 40%... Yet net sales are expected to grow between 30% and 35%..... management is baking in for a much greater probability of margin compression than expansion. This, all coupled with the fact that the ~5-6% margin company trades at a 53X P/E multiple (compared with an industry average of ~30X) and has seen it's FCF, which was only increased 16% (compared to a "71%" EBIT increase excluding FX effects, show a sequential downwards trend and yet has its stock trade up 12% in after hours perplexes me. Management completed dodged the question regarding the effects of the increase in oil prices on its margins. When asked about the specific impacts of the increase in oil expenses - "Could I ask two questions? First, what is the likely impact on your delivery and fulfillment charges, particularly with regard to Prime, of increased transportation costs? Is this really a 2009 phenomenon for you or is there a possible increase in delivery costs coming through the pipeline?" Management stated "This is something that we've been dealing with for quite some time. It's part of our overall cost structure. We started in the US, some of the free shipping offers back in 2002, I believe. Oil prices were around $22 a barrel back in 2002. They've continued to grow. And certainly, it is more costly, but it's not something that's really new to us. It's part of our overall thinking as we look at our costs." ... this doesn't answer the question if the rising upward trend in shipping costs, which increased 38% quarter over quarter and increased from 2.6% of sales to 3.6% of sales (I would assume the opposite w/ the economy of scales leverage / cost savings) will continue?

AMZN trying to get the BS accounting bubble days of 2000 by us, imo.

First of all GAAP rules have been followed. Secondly, their YTD effective tax rate is greater than last year's. Third, for zodlidd, I don't think analyts take out FX effects when coming up with EPS estimates so I don't think you should either. The FX effect should have been estimated and baked into the esitmates. Finally, just because I'm confused at how you got to this, but can you explain how the gain on the sale of the DVD unit would have decreased the tax rate for the quarter? Thanks.