July 22, 2010 / 8:35 PM / 9 years ago

Instant View: Amazon misses and shares tank, Microsoft beats

LOS ANGELES (Reuters) - Amazon.com Inc quarterly earnings fell far short of Wall Street estimates as operating expenses surged, sending its shares down 14 percent.

Also on Thursday, Microsoft Corp released results that surpassed analysts’ forecasts.

Commentary:

Amazon:

DAN GEIMAN, ANALYST, MCADAMS WRIGHT RAGEN

“There was definitely some unexpected pressure” in the second quarter. Geiman cited higher-than-expected marketing and general and administrative expenses during the quarter.

“Their tax rate came in at 29.6 percent, a fair amount higher.”

Outlook “looks little bit light ... Estimates will be coming down, it looks like.”

MARIANNE WOLK, SENIOR INTERNET ANALYST, SUSQUEHANNA

“Amazon has had a history of really beating numbers, and these numbers were much more in line with guidance.

“They were about 2 percent ahead of the midpoint of operating guidance. If you look back at previous quarters they were beating the midpoint by about 30 percent.”

“We’ve seen international margins fall significantly year-over-year. They have some very generous shipping programs over there, so that might contribute to increased operating costs.

“It’s a combination of not beating numbers to the extent that they have in the past, and the margin erosion we’ve seen here on a year-over-year basis.”

FREDERICK MORAN, ANALYST, BENCHMARK

“Amazon posted impressive revenue growth of 41 percent in the second quarter, driven by the recovery in e-commerce demand in the global market.

“Margins came in slightly weaker than expected.

“The third quarter guidance of revenue up 27 to 40 percent indicates sustainable demand despite the negative impact of the weak euro ... but similar to the second quarter results, the guidance for third quarter operating income looked below expectations.

“It appears that perhaps some of the price discounting may be negatively impacting margins and causing the strong revenue to not flow through to earnings as anticipated.

“The main thing that has happened — because of the competition against the iPad — they’ve had to slash the price on the Kindle, causing the company to take an upfront hit on profits and hindering margins.

“There’s a market share battle underway among e-readers.

“Amazon remains the clear winner and leader in e-commerce on a global basis. There was 9 percent (e-commerce) growth in the U.S. versus 46 percent in Amazon.

“They’re clearly gaining market share and outpacing overall e-commerce growth rate.

“The only scrutiny should come around the margins and bottom line.”

HAMED KHORSAND, ANALYST, BWS FINANCIAL:

“It looks like the increase in operating expenses (that caused the miss in EPS). It kind of brings back fears that there would be overspending at Amazon on different operating projects or expenses.

“It seems like they’re just taking a conservative approach (on their forecast). They’re just providing guidance that’s pretty much usual as far as a company goes.

“You can see that the consumer, even though they like shopping online, will look at different ways of saving money. And another contributing factor is if an individual is unemployed, they would probably rather spend time away from the house and therefore the computer.

“If they’re spending less time in front of the computer, they’re spending less time shopping online.

“So far, it seems they’ve maintained pretty good market share” for e-readers.

Microsoft:

SID PARAKH, ANALYST, MCADAMS WRIGHT RAGEN

“Generally speaking a fantastic quarter, good margins, nice beat on the EPS line.

“If you look at where the beat for Microsoft is coming from, it’s coming largely from its enterprise products businesses: servers and tools, and Microsoft business division.

“All those other things (such as mobile and online) had been weighing on the stock even prior to them reporting earnings. And they’ll probably weigh on the stock for a while.

“A little weakness on online services, and the Xbox was a little bit lower too but that number tends to jump around quite a bit.

On online results, “we were looking for $590 million and they came in at 565 million.”

“The division is still somewhat struggling, still not back on track yet.”

Clearly there are probably going to more questions on the call in general about what the broader environment is doing. And some may have expected a better deferred revenue number, it’s hard to tell.

ANDREW MIEDLER, SENIOR TECHNOLOGY ANALYST, EDWARD JONES

“These are very good results and earnings were up 50 percent, due largely to the success in the Windows cycle.

“With other PC-related companies like Intel doing so well, people were expecting Microsoft to do well and investors were already expecting a large beat by Microsoft.

“I was surprised at how strong results were across the board. Overall, I think we’re at the beginning of a strong new product cycle at Microsoft.”

BRENDAN BARNICLE, ANALYST, PACIFIC CREST SECURITIES

“It was a very clean print. I’m surprised we’re not seeing more strength in the stock, given the massive beat on the top line and a good beat on the bottom line. The enormous strength of Office was surprising.

“People are going to assume this was the peak, but it seems like they’re in for a good quarter in September.”

COLIN GILLIS, ANALYST, BGC PARTNERS

“It’s a great quarter — but does that matter? Everyone was expecting a strong quarter. This is the dilemma for Microsoft, how do they get the stock moving again?

“We all knew the business refresh cycle was in place. The average age of PCs was 4.4 years, Win 7 getting decent traction.

“We also got an indication from Intel. Intel gave great commentary about the refresh cycle.

He noted that Windows and Office, the company’s two growth drivers, are currently both in a refresh cycle.

“But the downside is where is the mobile strategy. What’s the search strategy. Where’s your social strategy?”

TOAN TRAN, ANALYST, MORNINGSTAR:

“Microsoft had a good quarter. The PC refresh cycle that is ongoing is obviously helping them out, with Windows and Office both having good quarters.”

KATHERINE EGBERT, ANALYST, JEFFERIES & CO.

“It looks really good. The operating margin is good at 37 percent. The billings at $18.6 billion is its best since September 2007. There’s not a lot not to like. It’s good all around.”

TRIP CHOWDHRY, ANALYST, GLOBAL EQUITIES RESEARCH

“It seems that the numbers were good. It looks like there was a beat on both the top line and bottom line.

“But our research shows that Microsoft might be in for some more challenging times with Office. There is huge pricing pressure. Last year, the average sales price on Office was $199. This year we’re seeing the average prices between $124 and $154. In terms of unit sales, I think they are doing fine. In terms of revenue, I think they are not doing fine.”

Reporting by Matthew Lynley in New York, Jim Finkle in Boston, Alexei Oreskovic in San Francisco, and Sue Zeidler, Lisa Baertlein and Carolina Madrid in Los Angeles; Compiled by Edwin Chan

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