3 Late October Earnings Reports I’ll Be Watching Closely

By Matthew DiLallo - October 19, 2012 | Tickers: AMZN, AAPL, FB, PETS, PETM | 0 Comments

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Ah, earnings season, where a snapshot of a company’s performance can send their shares on a wild ride.  This earnings season I’ll be closely watching three companies in my “No Drip, No Mess” portfolio.  All three are coming off misses last quarter giving investors reason to be cautious.  I’m hopeful that they can all report decent quarters to set investor’s minds at ease.

PetMed Express (NASDAQ: PETS) reports earnings October 22.  To date this has been one of my worst performing recommendations as shares are down more than eighteen percent since I added them to the portfolio.  The main culprit was their June earnings which missed by three cents. 

This quarter analysts are expecting just 17 cents a share which is down from the 20 cents they earned last quarter.  That would also put earnings down 10.5% from the same quarter last year.  The company is really struggling with stagnant revenue and compressed margins.  They’re spending heavily in marketing while cutting prices to drive traffic.  I’m watching to see if their investment in marketing can begin to bring some healthy revenue growth.

PetMed which operates the 1-800-PetMeds pharmacy is facing a tough battle online against the likes of Amazon while fighting brick and mortars like PetSmart (NASDAQ: PETM).  I have to admit as a new pet parent I’ve yet to find a reason to buy anything from PetMed Express.  They either don’t have the product I need or I can buy it much cheaper on Amazon.  Most times though I’ll go to PetSmart and I’m not the only one.  Sales have grown by 6.5% annually over the past five years while earnings have done a touch better at 8% annually. 

As far as an investment there are two big differentiators between the two.  The biggest is seen in the dividend yield as PetSmart’s dividend is less than 1% while PetMeds is now almost 6%.  Finally, when looking at earnings, PetSmart seems expensive at 23.5 times while PetMed trades at a reasonable 13.6 times earnings.  The bottom line is that the pet industry as a whole is massive and growing nicely and I still think that PetMeds niche business will prove to be a profitable one over time.

Next in line is Facebook (NASDAQ: FB) which reports on October 23.  I bought calls of the social networking giant on the long term belief that their open ended future is bright as they’ll eventually monetize mobile and use their cash hoard wisely.  While those calls are down almost 40% this is the first of five earnings reports over the life of these calls meaning a lot can change over their lifetime. 

Consensus is that Facebook will earn seven cents this quarter, but the most important thing to watch is how they’re doing with monetizing mobile.  A big earnings miss and failure to gain traction with mobile could send shares spiraling down a pit with no bottom in sight.  No doubt about it, this is a key earnings report for Facebook.   If they report decent numbers and show signs that mobile is working it might be time to add to the position. 

Investors are placing a lot of emphasis on mobile and rightly so.  There have now been a billion smartphones activated and according to Facebook’s last quarterly report 20% of their 543 million monthly mobile users accessed the site solely on their mobile device.  We all know that Apple’s (NASDAQ: AAPL) iPhone 5 just hit the market and they’ve tightly integrated Facebook into the new phone.  You can now “like” a song via Apple’s App Store or ask Siri to post an update to your wall.  This integration only means more users will be using their mobile device to be social.  The device launched the last week of the quarter and Verizon reported that 20% of the 3.1 million iPhones they sold in the quater were the iPhone 5.   

Finally, Amazon.com (NASDAQ: AMZN) reports October 25.  Shares are down about 10% since I added them to the portfolio.  The upcoming earnings report will be interesting because analysts aren’t actually expecting the company to earn money.  In fact, the consensus estimate is for them to lose eight cents a share for their just completed quarter.  Here’s the rub with the estimates, over the past four quarters they’ve missed by 39%, beat by 137% and again by 300% before missing again by 50%. 

Those huge earnings surprises are off fairly low bases and I’ll go out on a limb to predict we’ll see another one in this next quarter.  While earnings for the year are estimated to come in at 69 cents a share they’re estimated to grow more than tenfold by 2015.  This long term earnings potential is what interests me the most so while I’ll be watching this quarter’s earnings I’m more interested in adding to my position on a big dip than cutting shares loose on a disappointment.  Finally, I'll be watching for word on their Kindle launch as I anxiously await the arrival of my PaperWhite.  There seemed to be quite the backlog in the device so it will be interesting to hear what the company has to say about this and the Fire. 

Of the three, I think Facebook has the most to gain (or lose) from the upcoming earnings report.  They don’t have much goodwill left with their investors.  If they mess this one up, investors may be calling for Mark and his hoodie to hand over the reigns to a suit while he finds something else to do. 

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