E-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) recently reported its first quarter earnings, singing its same old song of light profits on monstrous revenue growth.
Looking ahead into 2013, however, Amazon.com, Inc. (NASDAQ:AMZN) is gearing up for some major market moving disruptions, which means that Netflix, Inc. (NASDAQ:NFLX), Apple Inc. (NASDAQ:AAPL) and the rest of the tech industry should be on their guard. Let’s check in on Amazon.com, Inc. (NASDAQ:AMZN)’s plans for growth and see if investors should take notice.
For its first quarter, Amazon.com, Inc. (NASDAQ:AMZN) earned $0.18 per share, or $82 million, down 36% from the $0.28 per share it reported in the prior year quarter. Analysts polled by Thomson Reuters had expected Amazon.com, Inc. (NASDAQ:AMZN) to earn $0.08 per share. EBITDA, which is a better gauge of Amazon.com, Inc. (NASDAQ:AMZN)’s growth, rose 37.2% year-on-year to $1.11 billion.
Meanwhile, revenue rose 22% to $16.07 billion, but fell short of the $16.1 billion that analysts had expected. That miss caused shares to plunge nearly 8% after earnings on April 26.
Looking forward, Amazon expects second quarter revenue to come in between $14.5 billion and $16.2 billion, in line with the consensus estimate of $15.9 billion.
Despite its own tight margins and profits, Amazon has consistently stolen market share away from brick-and-mortar retailers such as Best Buy Co., Inc. (NYSE:BBY), Barnes & Noble, Inc. (NYSE:BKS) and Wal-Mart Stores, Inc. (NYSE:WMT). In addition to being the largest digital bookstore and e-commerce site in the world, Amazon’s streaming video business is also growing rapidly, thanks to its subscription-based Amazon Prime service.
Amazon Prime offers free shipping on physical product orders, access to the Kindle owners’ book lending library, and unlimited access to select television shows and movies. The growth of Amazon Prime has been boosted by the rising popularity of its loss-leading Kindle Fire tablet, which is currently the second most popular tablet in America after Apple Inc. (NASDAQ:AAPL)’s iPad. The iPad currently controls 43.6% of the U.S. tablet market while the Kindle Fire has claimed nearly 8%.
Despite its efforts to expand overseas into high growth markets such as Brazil and China, 58% of the company’s revenue still comes from North America, a 26.4% increase from the previous year. Amazon’s North American Media business segment also grew year-on-year from 14.4% to 16.0% of total revenue. That growth was attributed to growth in the digital consumption of e-books, apps, games and videos. Across all markets, Amazon’s added 21 million active accounts during the quarter to end with 209 million users worldwide.
Amazon’s international media business, which accounts for 16% of the top line, posted a weak 1.3% increase in sales from the previous year, its weakest growth in five consecutive quarters. That anemic growth has prompted some analysts to suggest that Amazon needs to ramp up its overseas efforts. Amazon currently has Kindle stores in Brazil, China, Japan and Canada, where it sells thousands of local language e-books.
Meanwhile, electronics and general merchandise, which account for 38% of Amazon’s top line, declined 28.4% from the prior year quarter. The segment tends to experience cyclical seasonal surges, with the holiday season traditionally being its strongest quarter. Amazon is also building additional fulfillment centers to expand its reach across the United States, to reduce shipping times and expenses.
There are several major growth catalysts on the horizon for Amazon. Its recent acquisition of niche social reading site Goodreads is expected to boost book sales with more focused reviews. In addition, Goodreads should provide Amazon with additional information regarding customers’ reading habits, which can be used to streamline its e-book offerings. Amazon is also developing a direct publishing business (Kindle Direct Publishing), which can help it bypass major publishers such as Simon & Schuster, which have denied Amazon the right to set its own prices for digital versions of its titles.
Amazon is also expanding heavily into the digital streaming business in an effort to rival Netflix, Inc. (NASDAQ:NFLX). Amazon Prime Instant Video is not only available on the Kindle, but also Microsoft Corporation (NASDAQ:MSFT)’s XBOX 360, Sony Corporation (ADR) (NYSE:SNE)’s Playstation 3, personal computers, tablets and smart televisions. Amazon expanded its digital video library to 38,000 movies and television shows during the previous quarter. Netflix, Inc. (NASDAQ:NFLX), which has over 100,000 streaming titles, still has the upper hand in its library size, but Amazon’s relatively new video streaming service has already achieved consecutive double-digit growth over the past five quarters.