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Chances are you gave or received something from Amazon.com (AMZN) this holiday season. And it's more than likely UPS (UPS) left that package on your doorstep.
When it comes to holiday shopping on the Internet and the breakneck pace of deliveries during December, no other companies offer as much information about the health of the consumer-led U.S. economy. That's why the earnings reports from Amazon and UPS this week will be key for investors to watch.
To be sure, others will give insightful industry snapshots. MasterCard (MA) will publish credit- and debit-card transactions, a strong indication of spending. Chipotle Mexican Grill (CMG), which has been a big momentum stock, will reveal the impact of food prices and the difficulty of expanding abroad. And Qualcomm (QCOM), with its chips in mobile handsets like Apple's (AAPL) iPhone, is a bellwether of the tech sector.
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Amazon, which publishes its quarterly report after the stock market closes Tuesday, has its hand in so many areas that it's become a gauge for several industries. That's why it warrants so much attention from investors, especially after a holiday quarter where many brick-and-mortar retailers like Best Buy (BBY) struggled.
Once considered an Internet bookstore, Amazon now sells shoes, DVDs, video games, toys, exercise equipment -- the list goes on. Amazon has also become a powerhouse against Apple (AAPL) and Netflix (NFLX) with its catalog of streaming digital music and movies.
"It's hard to draw any type of conclusions from anyone else who had reported," says Bryan Keane, co-portfolio manager of the Alpine Global Consumer Growth Fund (AWCGX). "But Amazon is a price leader, which benefits them in this environment. The transition to online and the pricing preferences of the consumer are important trends to watch."
Apart from its dominant status as the biggest Internet retailer, Amazon has shifted its attention to cloud services, one of the hottest trends in technology. And now the company battling head-to-head against Apple's iPad with its Kindle Fire tablet device.
Many iPad competitors have come and gone, failing to loosen Apple's grip on the market for tablet computers. However, after Apple reported blowout sales of the iPad during the holiday quarter, there are new concerns that Amazon's lower-priced Kindle Fire ($199 versus the iPad base model price of $499) has failed to gain traction and will become another tablet that died before it had a chance to live.
"Just because Apple had a huge number of iPads sold doesn't mean that the Kindle Fire sales were weak," Keane contends. "We're talking about two different types of consumers. The $200 price point made it more likely to be a holiday gift."
With the Kindle Fire, Keane is looking for profitability. As an investor in Amazon, he wants to see unit numbers on the tablet device, as he knows the overall tablet market is growing at a rapid pace.
"Remember, the Kindle Fire is a reading device first and comes with the established track record and attractive price points," Keane says of the device's chances of success in the fourth quarter.
Still, Amazon may report narrower margins and falling profits as a result of higher spending, Keane says. However, Amazon has historically been great at making the right investments because they lead to an increase in sales, he says.
According to a poll of analysts by Thomson Reuters, Amazon should book a quarterly profit of 19 cents a share on sales of $18.2 billion. That would compare to year-earlier revenue of $12.9 billion and profit of 91 cents a share.
"Top-line growth should be very strong, but the question will be margins," Keane says. "It'll be about what they're spending."
Keane notes that Amazon is in the middle of an investment cycle, where the company is forgoing some profitability to grow the business. That's been the source of ire for some investors who would rather see profits now. Keane says those investors aren't thinking longer term.
"We've seen them going through these cycles and they've done a good job and it's paid off," he says. "We want to see how many of the benefits of the spending they've done over the past 12 months."
Of all the packages Amazon shipped, it's a safe bet that a majority were shipped by UPS. Of course, businesses all over the world ship via UPS, which makes the company's quarterly report a good weathervane of economic activity. After all, the 104-year-old company sends packages to more than 200 countries and territories.
When UPS releases its report -- also on Tuesday -- investors will be almost solely focused on the shipper's outlook for the full year after a wild holiday quarter. UPS should post $14.4 billion in revenue and profit of $1.26 a share for the holiday quarter, according to a poll of analysts by Thomson Reuters. That's up from revenue of $13.4 billion and earnings of $1.08 in the year-earlier quarter.
One of the reasons that UPS' report will be so closely watched is because investors believed that inventories at retailers were lean going into the holiday quarter, which would presumably lead to more shipments made.
Investors have already gotten a pretty good feel on the economy in the fourth quarter after Friday's GDP report. The advanced read saw economic activity grow 2.8% in the U.S. during the final quarter of 2011.
Instead, UPS could surprise with its view for full year 2012. Currently, analysts are looking for UPS to pull in revenue of $56.3 billion and post a profit of $4.77 a share in 2012. That would be up from estimated 2011 sales of $53.4 billion and earnings of $4.24 a share.
-- Written by Robert Holmes, The Street
