Is Something Wrong With Amazon’s Margins?

Amazon (NASDAQ:AMZN) is expected to post a loss for 2012 this Thursday, yet the company’s stock price is at an all-time high and a majority of analysts rate it a ‘buy.’

For the fourth quarter, current estimates call for the Internet retailer to post revenues of $22.27 billion, an increase of 27.8 percent from the year-ago quarter, with a profit of $0.28 per share, compared to the $0.38 per share reported in the fourth quarter last year.

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The disparity between earnings and revenue point to a particular problem with the way Amazon does business, one that will cause analysts to look closely at the company’s margins in its next earnings report. The Internet retailer significantly discounts some of its products, the Kindle in particular, to remain competitive, and this practice eats away at its margins. In early October, Chief Executive Officer Jeff Bezos announced in an interview with the BBC that the company sells the device “at cost” with profits coming from the sales of online content.

Even with predictions for sales set in a range of $20.25 billion and $22.75 billion for this quarter, earnings per share are expected to decline…

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