Is the leading online retailer catching a cold just before the critical holiday shopping season? Amazon (NASDAQ:AMZN) announced third-quarter results and a near-term outlook that fell short of Wall Street's expectations last night.
While earnings more than tripled to $0.13 a share and net sales came in at a robust $1.46 billion showing, the market was hoping for a little more. When Amazon initiated its glimpse into 2005 by pegging the top line to come in between $7.4 billion and $8.15 billion, the market was hoping for a lot more.
Like eBay's (NASDAQ:EBAY) report a day earlier, the strength in sales was masked by booming business overseas. Amazon's North American sales clocked in just 15% higher than last year's September quarter, and that may not be the high-octane Amazon that many investors have come to know and love.
This doesn't mean that Amazon is bringing on the heartbreak. The stock has soared by 158% since being singled out in our Motley Fool Stock Advisor newsletter two years ago, and no one is suggesting that gravity will wipe out those meaty gains. In fact, the same Amazon that some pundits figured would be left for dead when the dot-com bubble burst is actually operating as efficiently as ever. Over the past four quarters, the company has produced free cash flow of $420 million, a 76% improvement over this time last year.
However, Amazon has commanded a market premium due to its stellar growth in the past and that seems to be slowing. It is looking for net sales next year to grow by as little as 7% -- yes, 7% -- to as much as 22%. Is an Amazon that may potentially grow the top line in the single digits really worth a share price that is three times net sales? You can scoop up offline favorites like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) for less than their trailing revenues.
That is why the upcoming holiday season is so important to Amazon. If the company is going to take a hit in growing operating profits stateside like it did this past quarter for the sake of expanding its consumer-friendly shipping policies, it better be able to offset that with some heartier sales growth. Santa or Grinch, let's hope that Amazon's heart over the holidays is not three sizes too small.
Longtime Fool contributor Rick Munarriz has been an Amazon customer since the 1990s, but he does not own shares in any of the companies mentioned in this story.
