Let's talk about extending horizons, shall we?
Everyone today is focusing on Amazon.com's (Nasdaq: AMZN ) holiday-quarter report coming up on Thursday. I'm just asking you to take a leap of faith, long enough to look ahead three years instead of three days.
I have spent this month traveling back and forth from 2012 to where you are today, taking a look at how several different companies are faring.
I've got a few more days on this time-machine rental, so I may as well see how the country's leading online retailer is shaping up come 2012.
Thursday, Thursday, Thursday
I didn't convince you. Despite my best intentions, you're still worried about Amazon's fourth-quarter report. OK, let's get this out of the way, then. It was a good report. Heck, it was a great report.
Amazon flourished, and not just because it was already riding a hot streak, having topped Wall Street expectations in each of the first three quarters of 2008 -- or eight of the past nine periods -- leading up to the 2008 holiday season.
Amazon topped analyst expectations for $0.39 a share on Thursday. The pros blew it, assuming that the company -- like so many other retailers -- would be slammed on freefalling margins. Investors failed to realize that Amazon can still dictate its own markups, assisted by the steady trickle of third-party income from its booming marketplace. I am not denying that Amazon faces pricing pressures. It does. However, it is also there to take advantage of distressed merchandise makers, too.
In the end, Amazon on Thursday clocked in at the high end of its initial guidance, which called for between $145 million and $305 million in operating profits on 6% to 23% in net sales growth.
Life after the holidays
This doesn't mean that it'll be smooth sailing for the e-tailer after this week's report. Online specialists like Overstock.com (Nasdaq: OSTK ) , Blue Nile (Nasdaq: NILE ) , and Amazon went on to take a hit in 2009 as more states moved to make up for their budgetary shortfalls by tacking state sales tax on all Internet sales.
The move didn't stop shoppers from migrating online, but it did make deals harder to come by. Some held up better than others, but no one held up better than Amazon.
Why? Amazon Prime is the answer. The company's member loyalty program -- in which customers pay $79 a year for free two-day shipping on Amazon-stocked goods -- grows more popular with every passing quarter. The moment someone signs up, they lean more on Amazon to get the most out of the membership.
Wal-Mart (NYSE: WMT ) eventually followed suit with its own Prime clone for walmart.com -- Walton's Way -- in 2010. It is gaining a little traction by 2012, but it's really too late at this point. Amazon owns e-tail, and that's why rumblings at Target (NYSE: TGT ) to offer a similar program in 2012 are being met by board skepticism.
Amazon went where most online stores couldn't with Prime, because who really needs unlimited access to subsidized shipping from a high-end jeweler like Blue Nile? Overstock is more of a "one-stop shop" for e-tail, but it still can't match the breadth of Amazon. Online chains couldn't follow Amazon. Offline chains that could were too late.
Digital, baby
Amazon's push into digital delivery appears iffy to you in January of 2009. I can't say that I blame you:
- Amazon's Kindle e-book reader has been out of stock for two months, slamming the brakes on momentum.
- Apple (Nasdaq: AAPL ) owns the music space with its iTunes Music Store.
- Companies trying to push digital video face quality concerns, a limited number of homes equipped for seamless delivery, and the pesky presence of Netflix (Nasdaq: NFLX ) offering streaming to its subscribers at no additional cost.
A lot has changed since then.
On the Kindle front, the second generation of the e-book reader hit the market in early March of 2009. It was lousy timing for the introduction of a big-ticket item, but it got back on track after the economy bottomed heading into the 2009 holiday season.
We're on the third generation of the Kindle by 2012, as the devices do more than provide passive versions of books and magazines on a screen. Playing games and tackling crossword puzzles and Sudoku is a breeze with the new touch-screen Kindle. The ability to do everything from broker-subsidized online trading to ordering a pizza makes the Kindle -- now available in various sizes and configurations -- a popular gadget. It also doesn't hurt that many popular authors and a handful of publishers now only release their latest works on Kindle.
Apple is still the king of digital music. Apple and Netflix are still the digital video leaders. However, tying the third-generation Kindle to Amazon's MP3 store and Amazon's online video store are genius moves with a lot of potential.
In short, the next three years will be good to Amazon. Once the market swallows down the state taxation reality in 2009, it will embrace the online retailer's knack in growing its share of retailing as a whole.
If you're willing to buy my long-term bullish thesis, consider it shipped for free over the next two days: just in time for you to be ahead of the market for Thursday's blowout quarter.
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