Amazon Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Amazon.com (AMZN +1.10%). The holiday quarter is always an important time for retailers, but with the company's dual focus that includes a substantial presence in the budding cloud-computing realm, its namesake website's financials will only be part of Amazon's story. Let's take an early look at what's been happening with Amazon.com over the past quarter and what we're likely to see in its quarterly report on Tuesday.

Stats on Amazon.com

Source: Yahoo! Finance.

Will Amazon.com keep heading into the clouds?
Analysts have been lukewarm in their earnings expectations for Amazon over the past three months, pushing down their EPS estimates by $0.04. But the stock has raced higher, hitting all-time highs and gaining well over 25% since late October.

Amazon has always been more about long-term success than short-term performance, and nothing's different about this quarter than in the past. As interesting as it is to focus on how many Kindles the company has sold and how much it's spending to provide customer service, Amazon has made it abundantly clear that it's not interested in current profit. Rather, it's fighting Facebook's (FB +1.25%) attempts to set up an exclusive ecosystem that can capture users to meet all their needs. However, given Amazon's reach in retail, cloud computing, and other high-demand services, it already has a lot of what Facebook and other rivals can only wish they had: a tried-and-true vehicle for monetization.

On the streaming video front, Netflix's (NFLX 0.61%) huge earnings announcement last week shows the advantage of having valuable content. Amazon expects to develop its own original content later this year, following Netflix's production of House of Cards. It's trying to circumvent at least in part the need to pay third-party content producers huge amounts for streaming rights.

Amazon has its skeptics. With razor-thin profit margins and falling free cash flow, the company doesn't resemble many of its high-growth peers. After having so much time focusing on gaining market share in revenue at all costs, Amazon will eventually have to figure out how to make bigger profits from its innovations if it wants to satisfy investors.

Shareholders need to remember that for Amazon, earnings have never been as important as revenue growth and future prospects. At some point, that may change, but for now, guidance is far more important than whether the company manages to beat its relatively insignificant earnings at the end of 2012.

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