) recently announced its Q1 2011 earnings, in which it reported 38%
year-on-year improvement in revenues. Despite the top-line growth,
net income declined 32% because of higher shipping, marketing and
technology costs. Most of Amazon's value comes from its
traditional online retail sales, in which it competes with other
large corporations like eBay (
), Overstock.com (
) and Wal-Mart (
We currently have a
price estimate of $199 for Amazon's stock
, which is roughly in line with market price.
Product Mix Shifting to Electronics and General
Increased unit sales was driven by increased inventory,
selection of products and continued efforts to reduce prices.
Promotional efforts, like lower shipping rates, were also a factor.
Amazon's North American sales grew 45% in Q1 2011 vs. the same
period last year, and grew 31% internationally. International sales
were hurt by a decline in unit sales in Japan in the wake of the
tragic earthquake on March 11. We expect international sales to
continue growing as Japan recovers. International sales should
ultimately account for more than 50% of Amazon's sales over the
Sales Costs Increasing
Offers like free shipping have the ability to pump up unit
sales. However, the downside effect is an increase in shipping
costs to Amazon, which can drag operating margins over the
However, the long-term picture looks a bit different. Higher
sales volumes, improved operating efficiency and better terms from
suppliers should raise operating margins in the years ahead.
See our full analysis for Amazon's stock