Amazon Smashes Expectations, Guides Higher Sending Stock To All Time High

Amazon has done it again, and after a quarter in which Jeff Bezos and president Trump unleashed on the world's biggest online retailer prompting some to unload the stock on fears that the DOJ could launch an anti-trust crackdown on the tech company, AMZN is back to its short-crushing ways, reporting both revenues and EPS which blew away expectations, while guiding well above consensus, sending Jeff Bezos' net worth higher by $12 billion to $134 billion. 

In Q1, Amazon reported a whopping $3.27 in EPS, which smashed consensus estimates of $1.27, on net sales of $51.0 billion, $1 billion more than the $50.0 billion consensus estimate, mostly due to the contribution of AWS. As a reminder, last quarter Amazon had forecasted sales of $47.75 billion to $50.75 billion for the first quarter. Today's revenues are above the high end of the target.

In Q1, Amazon also reported operating income of $1.93 billion, smashing estimates of $1.01 billion and coming above the top end of the range ($736.0 million to $1.26 billion). Q1 Effective tax rate was 15.0%, down from 24.0% a year ago.

There was another big surprise in the contributions from AWS which in Q1 generated net sales of $5.44 billion, up 49% Y/Y, its growth rate increasing for the 2nd quarter in a row. As Bloomberg notes, this means AWS revenue continues to grow leaps and bounds, despite major price competition from Google and Microsoft. On the bottom line, AWS was responsible for operating income of $1.4BN, or a 25.8% margin, up from 24.3%.

In other words, AWS was responsible for 72.7% of Amazon's total operating income.

Still, even the retail side of the business showed an improvement, as amazon showed a big increase in retail-only gross profit, which jumped 54.6% compared to last year.

Of note: Amazon's "other" revenue category, which includes advertising sales, more than doubled in the first quarter to $2 billion, up 132% to be specific. As Bloomberg explains, Amazon's highly profitable advertising business is contained in this category and is rapidly growing.

Looking ahead, Amazon which is likely sandbagging again, sees the following numbers:

  • Q2 Net sales are expected to be between $51.0 billion and $54.0 billion, up between 34% and 42% Y/Y; Exp. $52.26BN
  • Q2 Operating income between $1.1 billion and $1.9 billion, compared with $628 million in second quarter 2017; Exp. is $1.13 billion.

Jeff Bezos was as usual, quite optimistic, especially when it comes to AWS:

AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” said Jeff Bezos, Amazon founder and CEO. “As a result, the AWS services are by far the most evolved and most functionality-rich. AWS lets developers do more and be nimbler, and it continues to get even better every day. That’s why you’re seeing this remarkable acceleration in AWS growth, now for two quarters in a row. A huge thank you to all our AWS customers, and you can be sure we’ll keep working hard for you.”

This comes just days after Bezos revealed for the first time that Prime had no over 100 million paying customers worldwide.

As Bloomberg summarized the report, Amazon forecast Q2 profit that topped analysts’ forecasts, thanks to soaring Prime subscribers and a profitable cloud-computing division that’s winning more corporate customers. The outlook reinvigorated enthusiasm for Bezos’s strategy of leaving rivals in the dust by constantly investing in growing businesses such as data centers, voice-activated devices, and faster delivery of more goods.

One thing is certain: Trump will be furious when he sees where Amazon stock is trading after today.

Finally, for those still concerned about AMZN's cash burn, the company reported LTM Free Cash Flow in Q1 of just over $7.3 billion.

Just as impressive, after sliding in early 2017, Amazon's operating margin has soared in the past two quarters, largely as a result of AWS.

The company's LTM operating margin is once again rising, after dropping modestly in early/mid 2017

What is somewhat surprising is that after constantly growing its workforce for years, in Q1 AMZN's total employees posted a modest decline, dropping from 566K to 563.1K, even as global net sales growth rose to 39% in Q1 from 36%.

One potential concern: shipping costs jumped 38% Y/Y, in line with revenue growth. This is a bit higher than previous quarters, although for now it appears not to be bothering investors.

In light of the above, it is hardly surprising that Amazon is soaring in the after market, suggesting that it will open above $1600 tomorrow, a new all time high for the stock price, and making Jeff Bezos even more unreachable in the category of world's richest man.

And some trivia: AMZN stock has rallied after eight out of the past 12 earnings reports. Amazon has traded as high as $1,641 after hours, and was last up 6.4% at $1,615/share. If it opens there tomorrow, it would be a record high. Meanwhile, Amazon stock is up 30% this year - the seventh-biggest gain in the S&P 500 -and about to be up even more. The S&P 500 is just down YTD.

And the bottom line: Jeff Bezos' net worth just rose by $12 billion to $134 billion.