Amazon Soars To New All Time High After Smashing Expectations

After two consecutive quarters of disappointing earnings reports (which however failed to keep the stock down), AMZN is back to its beating ways, reporting both revenue and EPS which blew away expectations. In the first quarter, Amazon reported earnings of $724 million or $1.48 per share, a 41% increase in quaraterly profit, and some 40 cents above the consensus estimate of $1.08, on net sales of $35.71 Billion, also higher than the estimate of $35.3 Billion, and up from $19.2 billion.

This was toward the top end of the company's guidance from a quarter ago, which saw sales rising as saw earnings rising as $35.75BN. The company's closely watched operating income came at $1.01 billion, beating estimates of $936.2 million.

The closely followed AWS segment reported net sales of $3.66 billion, also beating estimates of $3.63 billion, a Y/Y growth of +43%; However AMZN reported AWS operating income of $890 million, which was a modest miss to the $1.1 billion expected. AWS margin in Q1 was 24.3%, fractionally higher than the 23.6% reported a year ago.

Putting AWS in context, whereas AMZN's total operating income was $1 billion in Q1, AWS $890 million of this. The division has been facing tougher competition from both Microsoft and Google, prompting some concerns about whether the growth can continue on pace, especially amid price wars.

Looking forward, AMZN sees the following revenue and operating income:

  • Net sales are expected to be between $35.25 billion and $37.75 billion, or to grow between 16% and 24% compared with second quarter 2016. This guidance anticipates an unfavorable impact of approximately $720 million or 240 basis points from foreign exchange rates. Wall Street expected $36.9 billion
  • Operating income is expected to be between $425 million and $1.075 billion, compared with $1.3 billion in second quarter 2016. Wall Street consensus was looking for $1.49 billion.

Jeff Bezos was as usual optimistic:

“Our Prime team’s customer obsession kept them busy in 2016,” said Jeff Bezos, Amazon founder and CEO. “Prime members can now choose from over 50 million items with free two-day shipping — up 73% since 2015. Prime Video is now available in more than 200 countries and territories. Prime Now added 18 new cities, which means millions more members now get one and two hour delivery. New benefits were also added to the list, like Prime Reading, Audible Channels for Prime, Twitch Prime and more. And customers noticed — tens of millions of new paid members joined the program in just this past year.”

As a reminder, a big part of AMZN's spending is coming in international markets like Mexico and India, where the company is building out its Prime offerings and competing against heavily entrenched incumbents. As the WSJ notes, Flipkart, Amazon’s main competitor in India, just drew another big round of funding totaling $1.4 billion, including from U.S. rival eBay Inc. Last week, Amazon said it would be expanding its retail footprint to Australia.

The international business has been stuck in the red in recent quarters. That remained the case in the first quarter, as the division reported an operating loss of $481 million. Sales increased to $11.1 billion, from $9.57 billion a year ago.

As the journal also adds, the retail giant has also started laying the groundwork for its own shipping business to add capacity for itself. In the first quarter, Amazon said it is building its first air hub in Kentucky and is also planning to add airfreight capacity for Chinese customers. The company is leasing 40 planes and has more than 4,000 dedicated truck trailer hitches as it aims to move more of its goods itself, and has rolled out delivery in as little as an hour to more than 40 cities. But that fast shipping likely contributed to the company’s shipping costs rising 34% in the first quarter to $4.38 billion.

Despite the company's generous spending ways, analysts have said that high margin streams of revenue like those from its advertising, subscription and credit card businesses are expected to continue to grow and help offset higher spending.

Finally, for all the concerns about AMZN's cash burn, the company reported LTM Free Cash Flow in Q1 of just over $10 billion.

After rebounding in Q4, AMZN's operating margin posted a modest decline to 2.8%

Also notable, as of March 31, Amazon employed some 351,000 mostly part-time workers.

Finally, after a significant rise in the company's LTM operating margin in the past two years, it appears to have plateaued once again.

That however does not bother shareholders, who have sent AMZN to fresh all time highs, above $950, which means Jeff Bezos is now a little over $50 away from being the world's richest man.