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RJ Hottovy, Morningstar equity analyst, gives his predictions on Amazon's fourth-quarter earnings report due tomorrow.
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He commerce giant Amazon reports earnings tomorrow after the bell and despite holiday shopping in the sales of millions of Kindle fire tablets.
And are preparing for what could be a fourth quarter -- so what's the story with Amazon.
RJ how to -- is -- Morningstar equity retail analyst thanks so much for joining us so why are you anticipating a loss.
Yeah right now led Amazon's trillion -- investment -- and lot of this is for customer acquisition reasons but between technology behind the Kindle.
Suite of products and namely the fire video streaming rights and well are building up the -- -- designers.
It's really -- investment time for Amazon.
Even -- we do expect sales coming above the yet top and a management's guidance.
We think that they operating income number could disappoint.
Set the stock up for disappointment tomorrow.
I think the bottom line is that picking -- -- selling so well it's putting a lot of pressure on margins that -- -- a loss leading product which means that technically Amazon sells differ.
For less than what they actually manufacture for in the hopes that you know the digital media sales -- will make up that difference over time -- That's something we do you see happening but -- how can how -- he's emphasized.
If I would take a couple quarters and I think we're prepared for a couple quarters of soft operating income numbers but I think -- internal longer goal here I think this is really key customer acquisition tool to to build up the Amazon prime memberships.
As well as you know start to.
-- general merchandise sales through that distribution network that Hilltop.
We're optimistic longer term margins can rebound.
So is it worth signal long run to pursue this strategy and would you say by extension that if the stock dips -- -- loss that it's worth buying.
Yeah absolutely our fair value adjustment for the stock is 225 dollars and this assumes -- the company maintains.
Plus 20% top line growth of the next five years plus bills operating margins in the fourth 5% range.
And I do think if the -- to sell off tomorrow it would be a buying opportunity for this one of the most disruptive forces we've seen a retell a long time.
Stance again upon a market share I think a lot of initiatives we have placed our -- to longer term profitability in the sperm.
Your first question on the call what you wanna know.
You know I think just what everybody else is asking when is this gonna payoff do you have a time frame for how these investments are gonna play out.
How long can we expect to operate in -- low margin environment.
When you start seeing you leverage in the fulfillment senator -- -- ECB had a customer acquisition in the investments you made it.
I really think that would sought a lot of the fears are seeing in terms of profitability from street right now.
You know I've heard other people ask if there's an Amazon Smartphone in the offing.
Would that be good or bad news do you think that they need another product out there would you like to see -- just continue to focus on what they're doing.
Yeah I think I prefer to see just the tablet devices right now I think that's -- Smart customer acquisition tool.
I think if you exposure -- -- Smartphone you obviously have to have a wireless carrier -- well.
-- -- -- lost control over that product but then again a year.
In this day and age they're Smartphones are hot selling product and could be leveraged to bring people to the Amazon.com platform.
It depends on how it's structured but.
Get a good product in the long run and how much of a run for their money's been not giving them -- and how much you compare it to the iPad has that war shaping up.
-- I don't see much competition I'm not longer term I think that there's some internal issues that need to be worked out there.
I think the iPad is the serious competition but then again you can put him into different buckets I think.
-- -- full functionality we're travel apples really clearly making our margins on the products themselves.
I think that the fires more customer acquisition to a loss leader -- Amazon hopes of picking up and you know just -- up the ecosystem to keep a digital media sales.
Plus bring people Amazon.com RA -- -- thank you so much for your insight there ahead of earnings we appreciate it not a problem.
