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With the Dow Jones and Nasdaq crashing Amazon.com $AMZN stayed positive after another blow out quarter which sent the stock to a new high. Cloud division AWS continues to dominate and the Whole Foods intergration has not been the albatros predicted by many.

Amazon Prime Addiction

Surprise! Another Amazon Record Quarter

Reaction: Amazon.com, Inc.NASDAQ: $AMZN

Close: 1,429.95 +39.95 (+2.97%)

After New ATH of $1498 before Nasdaq crash

 

Earnings

Revenue rose 30% increase with operating income surging 70% on a y-o-y basis to $2.1 billion. Net income was up almost 150% on a y-o-y basis to $1.9 billion.  EPS for Q4 was $3.75, crushing the consensus expectation of around $1.75. 

Highights

  • Amazon got a $789 million provisional tax benefit from the U.S. Tax Cuts and Jobs Act of 2017.
  • Impressive integration the Whole Foods grocery business
  • Amazon Web Services dominance
  • Good prospects for core marketplace division.
  • North America revenues (including e-commerce, subscription and Amazon product sales) rose 30% through the first three quarters of the year to $69 billion and improved in the December quarter with a 42% y-o-y increase in revenue to $37.3 billion.

International

International revenues rose over 29% over the comparable prior year period to $18 billion for the quarter. However, Amazon International segment operated at a loss of $900 million for the quarter.

The aforementioned AWS enabling an aggressive straegy overseas. Higher operating expenses allocated towards fulfillment expenses, marketing expenses and promotion costs, which are higher than expenses in markets where Amazon already has a strong presence.

It is expected this trend to continue for a while with hostile competitors like Alibaba. Operating margins are likely to remain relatively low in the near future.

The Cloud - Amazon Web Services (AWS)

After being up 42% through the first three quarters of the year to $12 billion AWS revenues actually rose more in Q4 with 45% growth in revenue to $5.1 billion. AWS is the most profitable segment for Amazon, with a 26% operating profit margin for Q4’17. The amazing success has enabled $AMZN loss leading 'takeout' strategy to exist and flourish. With that revenue AWS has effectively funded $AMZN expansion.

AWS is the envy of Apple, Oracle, Google, IBM and every other niche cloud provider. AWS is the leading platform in this growth market.  Amazon Web Services., Amazon's cloud business in just ten years has become the fifth-largest business software provider in the world.

Revenue at Amazon Web Services rose 43 percent in 2017 to $17.5 billion, that is nearly about one-tenth of Amazon's total revenue, $AMZN said. The only publicly-traded business software companies ahead of AWS are Microsoft, IBM, Oracle and SAP, according to data from FactSet. With AWS being so dominat in cloud infrastructure technology they are qucikly closing that gap.

Amazon has proven that it can diversify beyond e-commerce whilst at the same time Microsoft, Google, IBM and others are all chasing AWS in the cloud.

 Biggest software companies

If AWS continues to grow as much as it did lin 2017 it could pass SAP in size before the end of 2019. SAP's 2017 revenue of $26.5 billion was up 6 percent, and the company expects the same growth rate in 2018. Analysts are currently projecting 38 percent growth at AWS this year, according to FactSet.

AWS is almost twice as big as Salesforce, which generated sales of $9.9 billion over the past four quarters, growing 25 percent. 

Amazon Prime

Amazon has said that its most recent Prime Day was the best on record.  Before the latest Prime Day, Consumer Intelligence Research Partners estimated $AMZN added 22 million U.S. members to Amazon Prime in the past year. This takes the total to 85 million. The analysis shows Amazon Prime members spend around $1,300 per year on the site. Non member customers spend aroun $700 per year they show.

CIRP estimates 63% of Amazon shoppers are Prime members. Josh Lowitz, co-founder of Consumer Intelligence Research Partners says "Amazon Prime membership basically doubled in the U.S. in the past two years." 

On average, U.S. Amazon Prime members shop at Amazon 25 times per year. In contrast, customers without Amazon Prime shop at Amazon an average of 14 times per year, CIRP said.

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Brick and Mortar Acquisitions and Partnerships

Amazon has been on a buying spree with WholeFoods, talk of Amazon Moving Into Real Estate and last quarter the deal with Sears where Kenmore appliances will be sold through Amazon. Investors will be looking for updates on these and others and a clarification of just what is their strategy going forward. One I would like to hear is about the Whole Foods locations and the $400 billion plus pharmacy market.

There is also the latest retail partnership, this with Kohl’s Corporation $KSS. Amazon will  start selling smart-home products in Kohl’s stores and cater for product returns. With Whole Foods, Sear and now Kohls Amazon is stealthly building brick-and-mortar retail for it's digital base.

Third-party Sellers

Futher to the above partnerships Amazon's platform is the second-largest for them with $7billion in revenue in Q217 compared to $23.8bn in the retail business. With the hype around China and competition this business is another key for Amazon as Alibaba $BABA is plotting it's international expansion.

Outlook

Amazon completed the Whole Foods acquisition in late August. $AMZN's current growth is expected to come from existing businesses, including core e-commerce as well as AWS.

In the first quarter, Amazon expects its overall revenue to grow around 34-42% on a y-o-y basis to around $49 billion. Better than expected profit margins and EPS in the December quarter has led to some optimism among analysts.

Consensus estimates for Amazon’s earnings per share for the December quarter stand at around $1.80 per share, compared to around $1.48 in the prior year period. 

Amazon.com, Inc; $AMZN ; Factset. CNBC

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