Interview: Jupiter Research on Amazon.com
>> we have computer associates and bob bowden is standing by with the numbers.
>> thank you, lori, checking out c.a. right now, reporting 24 cents for last quarter, meeting the 24-cent analysts’ estimates for computer associates and the forecast at 24 cents. pulling out the forecast, that’s 25 cents for the forecast for the current quarter. so that’s missing by a penny on the forecast for the current quarter. for computer associates. also, checking other news, the company says that second-quarter bookings fell 11% to $665 million. checking after-hours’ reaction to c.a., what we have―we’ll have that later for you. but basically, the headline is computer associates forecast missing by a penny. back to you.
>> thank you very much. a lot of economic data in the news today, a busy day. consumer confidence numbers released this morning. confidence unexpectedly fell to a two-year low in october. high energy prices, left consumers with less money to spend, raising fears of a slump in holiday spending. the conference board’s consumer confidence index fell to 85 from 87.5 in september, a far cry from the average reading of 98.4 over the past five years. treasury notes fell as traders and investors said the confidence number would not stop the fed from continuing to raise interest rates. the fed meets a week from today. checking the shorter end of the yield curve, down 4/32 with the yield on the two-year at 4.33%. amazon.com, world’s largest online retailer, reported third-quarter earnings. vikram sehgal covers online retailers for jupiter research and he’s in our studio. welcome. the story with amazon, investors really key into those margins and we know in the third quarter amazon.com’s margins dropped to 24.9%, that’s ploble why -- probably why we see shares lower in extended trading. why does amazon go from here?
>> what we are going to expect is the holiday season is upon us and we’re going to expect margins to be squeezed further especially for online retailers because online consumers expect free shipping more so this year an last year given the high gas prices and most of these online retailers have to absorb these rather than pass it along to consumers.
>> an interesting situation with amazon, rising gas prices were a challenge for them but you could look at the other side of the story and say, gosh, with rising gas prices, many customers will probably more likely to do shopping online.
>> right. so there’s―two stories to this. one is that, yeah, they are likely to shop online where price is still king. they need to continue to compete on price and continue to give free shipping as one of the incentives. and they’re also competing with the offline stores where they’re less likely or at least the perception is they’re less likely to go because of high gas prices, avoiding the trips to the malls.
>> i want to invite bob bowden to ask you questions.
>> i wanted to ask you about the competition in particular, since last year, an advertising campaign by overstock.com,,”it’s all about the o,” is their line. once i typed in books, there was competition from brick and mortar retailers with their websites. is that landscape changing for amazon?
>> it’s been changing and we expect it to continue to change but we expect online retail steals to grow 20% this year and there’s room for companies like amazon who are online only, who are competing with the brick and mortars, as well. so there’s room to grow for all.
>> let’s talk here about some of their other competitors. how does amazon.com set itself apart from competitors such as wal-mart, world’s largest retailer or even ebay.
>> ebay is a different animal. amazon.com talks about the convenience and what to bring to the table and they have a loyal customer base. marketing with them effectively and segmenting the consumers is going to be key as to how they’re going to keep attracting consumers coming online. this year, we expect approximately 12 million new online buyers coming on line and many this holiday season so attracting them and gaining a higher share of existing customer base is key for amazon.
>> i want to ask about earnings for amazon. i’ve charted it on the bloomberg terminal. the point is how earnings have dropped the last three quarters and predicted to drop. the red numbers are the last three quarters, earnings down. five quarters had earnings up more than 20% and three in a row down more than 29%. what changed?
>> it’s extensive competition. so they’re spending more on marketing , spending more on online search. and in addition to other marketing , as well. so prices have always been key. they’ve tried to move away but it continues to be that consumers are always looking for a bargain online or offline so it’s a national phenomenon over the past year or so.
>> thank you for joining us this evening. vikram sehgal of jupiter research with his commentary on amazon.com. from online shopping to fast food, mcdonald’s says it is getting more health conscious. we’ll talk to the c.e.o. about that.
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Listen Market briefing --- Lori (slow)
Amazon.com --- Suzanne (slow)
Earnings --- Bob (fast)
NYSE --- Deb (fast)
forecast from texas instruments and this month’s biggest jump in oil prices hurt the market . technology shares paced declines along with retailers, which were brought down by an unexpected drop in the consumer confidence index, to a two-year low. we’ll bring you the closing numbers. the dow jones industrial average close down 7 points, a fractional percent. the dow flirted into positive territory but is extending october’s slump. the s&p 500 also lower on the day, down .25% and the nasdaq composite index down six points, that is 1/3 of a percent decline. amazon.com’s third-quarter results are out and the stock is lower. suzanne o’halloran has the story.
>> thank you very much. shares of amazon.com trading down by 7% in extended trading, although sales rose, profits and margins are not what analysts were hoping. earnings excluding items were 12 cents a share, topping forecasts of 10 cents. revenue climbed 27% to $1.86 billion, ahead of forecasts. the release of the latest harry potter book was a mixed blessing, lifting sales but amazon had to cut the price of the book, hurting the profit margin. amazon c.e.o. jeff beesose is adding more warehouses and software engineers to upgrade service. gross margins declined sequentially to 24.9%. livs i spoke to ahead of the report hoped to see margins stabilize. gross margins have dropped the past four years as sales continued to soar. amazon gave a disappointing forecast for the fourth quarter, its busiest season. operating income is expected to be as much as $210 million and revenue as much as $3 billion. the bulk of amazon’s profits come from books, music and videos. analysts say amazon needs to offer higher margin items.
>> the items that brings cowrms to a store or site is electronics, especially in the christmas season so i think this season they will focus on those customers but the goal for amazon will be to be able to expand the customer’s exposure to other areas to be able to have them think of amazon if they’re thinking of apparel or even appliance item.
>> ahead of the report, shares of amazon were at a 52-week high today for the year, the stock up 4%. lori, all indications from the extended trading session is that the stock will open lower tomorrow. back to you.
>> suzanne, thank you. other earnings out after the bell, checking with bob bowden for details.
>> thank you. we begin with flextronics, the world’s largest contract electronics manufacturer, the largest maker of electronics for other companies. the stock taking an after-hours hit. on a gaap basis, the company lost money slightly but on an operating basis, the headline number 17 cents a share, missing the 19-cent average analyst estimates. revenue coming in down 6.1% from the same period the year before and missing the midpoint of the forecast it issued in july. 3.8 to 4.2 was the forecast back then. no relief from the current quarter, either, the forecast. flextronics only sees 18 to 20 cents a share in the third quarter, analysts at 25 cents a share and the weak numbers have produced that on the bottom of your screen, a weak after hours stock price, down over 12% for flextronics. r.f. micro devices reporting four cents a share in the fiscal second quarter, beating estimates. the revenue forecast in the current quarter in a range of $205 to $212 million, the range higher than the $191 million analysts were looking for. r.f. micro up 2.66% in extended hours trading. chiron falling in after hours, quite a bit. it’s like more what we were seeing with chiron at the beginning. well, that is chiron, more like with r.f. micro. the company wrote off its flu i have ron inventory after -- viron inventory after inventory prices arose in the u.k. not a large move after hours, but a 1.56% downward for chiron.
>> thanks for that. the market attempted a late-day rally but failed, leaving the major indices lower. more on today’sitration action, a report from deborah kostroun at the big board.
>> in the last few minutes of trading, we did see the dow jones industrial average move higher. however, could not hold on to gains so a little bit disappointing, also disappointing is the s&p 500, failing to post more than two straight days of gains so far this month and what has been keeping the s&p lower, concern about inflation and rising interest rates. all day today, semiconductor were lower after texas instruments said profit this quarter will be less than expected. sales expected to decline for the fourth quarter. chief financial officer saying the company may not have enough inventory if sales accelerate and that could limit sales in the holiday buying season which of course is the busiest for consumer electronic makers and also retailers. cablevision on the day, sharply lower after the dolan family withdrew the $7.9 billion offer to take the company private after failing to reach an accord with directors during four months of talks. so, even for the year, however, the stock down only 3%. existing home sales, they were unchanged in a report coming out today and that really kind of led the bloomberg home building index lower. many of the home building stocks sharply lower in today’s session. lexmark falling today. that after their third-quarter profit fell after a slump in ink cartridge prices. it expects their fourth-quarter profit to be below estimates. that stock, however, down 53% so far this year. and we saw crude oil on the rise, on the day, not only crude oil but we also saw natural gas and heating oil all on the rise as fuel consumption is expected to increase going into the winter. crude oil with its biggest increase since september 19 and our biggest one-day gain for natural gas in a month, up 10%. really, that led the s&p 500 energy index to be the biggest gainer in the 24 industry groups of the s&p 500. you saw oil services and also integrated oil stocks higher. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> thank you. boeing is set to report third-quarter results before the open of trading in new york tomorrow. boeing’s c.e.o., james mcnerney, quickly oversaw the settlement of a machinist strike in september, limiting the damage the walk-out could have had on new orders. airplane shipments were hurt by the strike and analysts want to know how quickly boeing with recover. fresh on the job, mcnerney settled the strike by 19,000 machinists in record time and the company’s stock rebounded as investors bet the walk-out would have little impact on the company’s plane deliveries. as many as 30 planes were not delivered in september and analysts say they want to hear boeing’s update for aircraft deliveries when boeing reports tomorrow.
>> investors i think would like to hear about the impact of the boeing strike, the machinist strike, on this year’s scheduled deliveries and whether boeing can make up substantial portion of the aircraft that it did not deliver because of the strike in the third quarter.
>> boeing is not changing its forecast that it will delivery 320 planes this year. as for third-quarter net income, analysts expect it to rise 43% to $650 million or 80 cents a share. the quarter’s results include a $575 million pretax gain from the sale of its rocket engine unit to united technologies. third-quarter revenue will probably rise more than 1% to $13.3 billion thanks partly to a surge in military spending. cost cutting, another key part of mcnerney’s strategy. boeing is focusing on faster assembly times to lower the costs of making aircraft. the productivity gains are expected to help boeing reach its goal of achieving profit margins of 10% and allow the company to compete against airbus on price. boeing said it would top airbus on plane orders this year, already receiving 616 orders. analysts say a global economic recession or drop in u.s. military spending are still risks for boeing.
>> we have an economic recession globally. that’s what drives traffic and that’s what drives demand for planes so that certainly would be one issue. i think we have a tighter defense budget so they’ve got some programs that might be cut back. i think that would be a second issue.
>> a program note, at 12:30 new york time tomorrow, we will speak live with james mcnerney, c.e.o. of boeing, on the bloomberg news program “in focus.” amazon.com out with third-quarter earnings, learn what’s driving the company’s growth and the latest trends on the online shopping industry, next.
