Forget about "earnings season." Tomorrow we'll take a break to experience "rainy season" -- in other words, Internet retailing heavyweight Amazon.com (NASDAQ:AMZN) is ready to report. The news will be a double-whammy, importance-wise. Not only will we learn the full-year numbers, but we'll also get those for the firm's most important quarter of the year -- Q4, also known as the Christmas Quarter.

Wall Street Wisdom:

  • General consensus. 24 analysts brave the Amazon. Then again, perhaps "brave" isn't quite the right word. Only three out of this timid two dozen back the stock with "buy" ratings; a dozen wafflers vote "hold," and the rest say "sell."
  • Revenues. After skimming Amazon's own earnings forecast (er, I mean, after conducting diligent and independent research) of $2.86 billion and $3.16 billion in Q4 sales, the analysts reached the consensus that Amazon will report $3.08 billion in sales tomorrow.
  • Earnings. They further predict a 40% decline in quarterly profits, to $0.21 per share.

Margin watch:
Viewing Amazon's rolling gross and operating versus its net margins offers a study in contrast. Gross margins on average vary very little from quarter to quarter (on a trailing-12-month basis, of course). Operating margins fluctuate a bit more, but just look at that net! And in particular, look at that net margin for the December 2004 quarter, when it actually exceeded the operating margin. How does that happen?

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

23.6

23.5

23.1

23.3

23.6

23.8

Op.

6.9

6.7

7.1

6.8

6.8

6.4

Net

4.6

5.0

8.5

7.6

6.9

6.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
It happened in this instance because Amazon recorded a deferred tax credit built up from its past losses. That non-cash credit boosted the firm's net by $233 million in the year-ago quarter, and Amazon's rolling net margin has been coasting on the effects of that boost ever since. Unfortunately, it's been coasting downwards. Tomorrow, we'll see whether the company can pick up the pace again and reverse that slide with some real, honest-to-goodness cash profits.

Fool contributor Rich Smith does not own shares of Amazon.com, but the stock is a recommendation of Motley Fool Stock Advisor . Try a 30-day free trial subscription and get access to the cream of the crop of David and Tom Gardner's picks.