An Indication May Beat Wall St. Estimates

ChannelAdvisor's report on June online sales shows a healthy acceleration for Amazon. Could this indicate a strong financial report in July?

David Eller
David Eller
Jul 16, 2014 at 12:26PM
Consumer Goods Inc(NASDAQ:AMZN) may be warming up for the All Star game as an industry report shows it may have hit June's sales targets over the center field fence. A recent ChannelAdvisor report indicates that revenue growth may be ahead of estimates in the June quarter which bodes well for the Christmas season. The report isn't all sunshine and rainbows though as eBay Inc (NASDAQ:EBAY) saw an overall increase but weakness in some key segments. Could this monthly sales forecast signal upside for Amazon shares?

ChannelAdvisor's crystal ball
ChannelAdvisor released its June same store sales estimates for a number of online retailers. The results were mixed for some, but Amazon's imply things are picking up. ChannelAdvisor tallies the Gross Merchandise Value for stores that have been open one year or more. This data is used to provide insights to retailers and manufacturers. Its like a sales tracking solution that is used by the retailers themselves but also Wall St analysts.

Goldman thinks it could add 9 percentage points of growth
One of the first to step up to the plate was Goldman Sachs. Goldman's Internet Retail Analyst, Heath Terry, jumped on the issue today  releasing a research note stating that "Amazon's North America reported revenue growth has averaged 1.2x the Channel Advisor reported revenue growth rate." This implies upside of 9% to Goldman's estimates.

Don't forget about margins though
At the risk of sounding like an alarmist, even though Amazon's core business seems to be doing better than analysts expect, this doesn't ensure the stock price will go up after the earnings call. Its a good sign if you are an investor, but not a sure thing. In the March quarter, for instance, when Amazon reported better than expected revenue growth, the stock lost 14% in the next two trading sessions as investors became more focused on profits.

Bright spot in a weak retail environment
In the last week, discretionary spending seemed like it might have been tighter than analysts were expecting. Companies that showed weak sales this week included Lumber Liquidators and PotBelly Corp, but don't forget the Container Store which may have summed up the issue best saying that "we're experiencing a retail funk". The US may be in a retail funk, but there will always be companies that outperform, and if ChannelAdvisor's data is correct, Amazon is likely to be one of them, on the top line at least.

Not everybody saw big increases in June
eBay's results were more mixed. Overall, a 12.3% increase looks healthy, but eBay auctions were down 19% year over year and Motors Parts and Accessories slowed to 10% year over year growth from 15% in the prior quarter. This doesn't seem to indicate a big directional move one way or the other.

Earnings expected for July 24th
Overall, Amazon shareholders just received a bit of good news. The company has a history of spending its profits though, so it may be too early to count on a big return after earnings are announced. Is this a good indication? Yes. But this is batting practice, the real game is coming July 24 when Amazon is expected to report earnings. If Amazon's new product introductions are beginning to pay off earlier than expected, this bodes well for long-term investors as the increased ecosystem not only improves profitability but also tightens the relationship with the customer.