The Zacks Analyst Blog Highlights:Amazon.com, Microsoft, Sony, Apple and Coach

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Jan 31, 2013, 09:30 ET

CHICAGO, Jan. 31, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Amazon.com (Nasdaq:AMZN), Microsoft (Nasdaq:MSFT), Sony (NYSE:SNE), Apple (Nasdaq:AAPL) and Coach, Inc. (NYSE:COH).

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Here are highlights from Wednesday's Analyst Blog:

Amazon Gains from Holiday Spending

Amazon.com's (Nasdaq:AMZN) fourth quarter earnings of 21 cents missed the Zacks Consensus Estimate by 8 cents (27.6%). However, shares appreciated 8.9% in extended trading, more than making up for the 5.7% decline during the day, due to operating margin improvement for the first time in five quarters.

Revenue

Amazon reported revenue of $21.3 billion, up 54.0% sequentially and 22.0% from the year-ago quarter. This was in line with the guidance for the quarter of $20.3-22.8 billion (up 55.7% sequentially, or up 23.3% year over year at the mid-point), although short of our expectations. Year-over-year revenue growth was 23% excluding unfavorable currency impact.

Around 57% of sales were generated in North America, representing a sequential increase of 54.4% and a year-over-year increase of 23.0%. The balance came from the International segment, which grew 53.5% sequentially and 20.8% year over year (23% excluding unfavorable currency impact).

Active customer accounts increased by 12 million to more than 188 million. Active seller accounts stayed above 2 million. Paid (third-party) units were 39% of total units in the third quarter, compared to 41% in the second quarter.

Key strategies for driving revenue growth remain a vast selection, competitive pricing, free shipping, user experience on Amazon properties and the Amazon Prime program. Fulfillment centers are also important, since they are essential for providing the level of customer service that Amazon customers have come to expect of the company. Over the past year, Amazon has been investing heavily in fulfillment and technology & content.

Segment Details

Amazon's North America Media business was up 31.1% sequentially and 13.3% from last year to 14% of total revenue. The consumption of digital content across categories is helping the business. While selling and lending books on the Kindle platform continues, Amazon is also developing its direct publishing business.

In addition to Kindle ebooks, Amazon is going great guns with its video content. Prime Instant Video has the broadest reach, across Kindles, Microsoft's (Nasdaq:MSFT) Xbox 360, Sony's (NYSE:SNE) Playstation 3, Apple's (Nasdaq:AAPL) Mac or other PCs, as well as on TV.

Additionally, titles were expanded to 36,000 movies and TV episodes in the last quarter. Amazon's reach and value proposition are making it a key player in the video distribution business. The category saw strong double-digit growth in four of the last five quarters.

The Electronics and General Merchandise (EGM) business in North America (40% revenue share) was up 68.0% sequentially and 23.6% from last year. EGM is a more seasonal business with holiday-driven spending having a significant impact.

This seasonality has increased manifold since Amazon launched the Kindle platform. Therefore, year-over-year comparisons are more meaningful. We see very strong double-digit growth in each quarter since December 2009, which is indicative of the expansion in the market and Amazon's growing position within it.

Amazon's International media business (17% of total revenue) was up 51.4% sequentially and 4.8% year over year. EGM, which was around 26% of total revenue, grew 55.3% sequentially and 34.7% from last year. This seems to indicate a greater preference for purchasing electronics rather than content in international locations.

Once the electronics business gains momentum and Amazon has enough fulfillment centers set up, we expect further investment in content. Amazon now has Kindle stores in Brazil, Canada, China and Japan where thousands of local language books are being sold. Therefore, new product categories, better selection within categories, competitive prices and free shipping remain drivers.

The Other segment, while still small (around 4% of total revenue, mostly in North America) includes Amazon Web Services (AWS). The North America business grew double-digits from both the previous and year-ago quarters. Growth in the international business was strong on a sequential basis, but not with respect to the comparable quarter of the prior year. During the year, AWS launched 159 new services and also reduced prices.

Coach Downgraded to Strong Sell

Zacks Investment Research downgraded Coach, Inc. (NYSE:COH) to a Zacks Rank #5 (Strong Sell) on Jan 29, 2013.

Why the Downgrade?

Coach witnessed a sharp downward revision in estimates after posting lower-than-expected second-quarter fiscal 2013 results on Jan 23, 2013.

The quarterly earnings of $1.23 per share fell short of the Zacks Consensus Estimate of $1.29 but rose from $1.18 earned in the prior-year quarter.

Management cited that the challenging macroeconomic conditions and intense promotional strategies undertaken by competitors in the women's handbag category muted the company's performance in North America. However, international results remained a bright spot in the quarter.

Coach said that net sales for the quarter came in at $1,503.8 million, up 4% from the year-ago quarter but came below the Zacks Consensus Estimate of $1,605 million. We also remain concerned about erratic consumer behavior and soft economic recovery.

The Zacks Consensus Estimates for the third and fourth quarters of fiscal 2013 dropped 3.5% and 4.2%, to 83 cents and 92 cents per share, respectively, over the past 7 days. Moreover, for fiscal 2013 and 2014, the Zacks Consensus Estimates fell by 2.6% and 4.7% to $3.78 and $4.24 per share, respectively, over the same time frame.

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