Amazon.com (AMZN 0.41%) appears to be gearing up for a strong holiday season. Citi analyst Mark May pointed out earlier this month that the company is hiring 70,000 seasonal employees for the holidays, up 40% from 2012. Comparatively, Macy's (M 1.60%) is increasing its seasonal employment by just 4%. Meanwhile, eBay (EBAY +1.08%) had a disappointing fourth quarter outlook citing macro-economic concerns. Is this just wishful thinking on Amazon's part, or is it capable of bucking the trend?
Seasonal hiring
Last year, May points out, seasonal hiring at Amazon grew about in line with U.S. revenue growth. If the same trend plays out in the fourth quarter, we're in for a 10% upside surprise on quarterly revenue compared to the midpoint of Amazon's forecast. Of course, if the corresponding 10% upside fails to materialize, we'll see it in the operating margin.
CFO Tom Szkutak was fairly vague in his response to Mark May's question regarding what might be driving the hiring increase, basically saying the company wants to make sure it has the right amount of employees for the season.
Meanwhile, Macy's hired just 83,000 additional employees for the holiday season, a 4% increase from 2012. Analysts expect fourth quarter sales to decline 0.9% from 2012 based on the company's recent results. Macy's CFO Karen Hoguet said cosmetics, fragrances, jewelry, and watches "all softened in the second quarter compared to the first" on the company's most-recent earnings call.
The forecast
With a shortened holiday season and low consumer confidence, Amazon forecasted just $23.5 billion to $26.5 billion in revenue for the fourth quarter -- 10% to 25% growth. The company registered a 24% sales increase in the third quarter, and I wouldn't be surprised to see Amazon finish the fourth quarter in the higher end of its forecast, which analysts believe is conservative despite 18% growth at the midpoint. Currently, analysts have a consensus estimate of $25.9 billion for fourth-quarter revenue.
eBay, on the other hand, disappointed analysts with its fourth quarter forecast. The company expects $4.5 billion to $4.6 billion in revenue compared to a consensus estimate of $4.64 billion. It also expects just $0.79 to $0.81 in earnings per share compared to the Street's $0.83 expectation.
Other factors driving sales
Aside from the oddly large number of seasonal hires at Amazon, its earnings release held a few other tidbits that bode well for the company.
For whatever reason, Amazon felt it was important to mention that in the last 90 days, it has signed up "millions of new Prime members." The company doesn't usually mention this, and Szkutak only said, "we are very excited Prime is growing very fast" on the conference call.
Amazon Prime adoption is a great signal for increased sales, as the average Prime member spends more than twice the average non-Prime member.
Additionally, Amazon highlighted its new line of Kindle tablets along with Kindle matchbook, which allows customers to buy a corresponding print book purchase (dating back to 1995) in Kindle format for a discounted price.
Bucking the trend
E-commerce is growing significantly faster than brick-and-mortar retail. Even as Macys struggles to grow revenue, Amazon should be able to continue growing at a breakneck pace as even last minute holiday shoppers can get their items delivered on time with Amazon Prime. The continued strength of the program, along with a huge increase in seasonal hires, is a strong indicator that Amazon is being conservative with its sales forecast.
As for eBay, its forecast did not convey strength. While macro-economics may be a factor, perhaps its seeing increased pressure from competitors as their businesses push into e-commerce.
