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Retail monster Amazon.com reported record second quarter earnings Thursday booted by its retail business. $AMZN cloud division AWS continues to dominate. Other FAANG companies Facebook $FB and Alphabet $GOOGL reported this week also.



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CEO Jeff Bezos Adding To His 'World's Richest Man Stats 

Amazon.com Inc. (NASDAQ: $AMZN) Earnings Beat EPS Miss Revenue After Close Thursday

 

$5.07 beat $2.50 EPS But $52.9 Missed $53.38 billion forecast in revenue 

Earnings

Reported second-quarter net income of $2.5 billion, or $5.07 a share, up from earnings of 40 cents a share a year ago, the first time $AMZN has reported $2 billion in quarterly profit. Amazon reported revenue of $52.9 billion, up from $37.96 billion a year ago but under analyst estimates for revenue and double on EPS of $2.48 a share on sales of $53.37 billion.

Amazon.com, Inc. NASDAQ: $AMZN

Market Reaction > Pre-market $1,885.00 +$77.00 (+4.26%)

Highlights

Retail

  • Retail business revenue of $46.78 billion,  lower than  average analyst estimate of $47.37 billion, but operating profit of $1.34 billion crushed expectations of $240 million.
  • The big beat in the retail business came from North America, where Amazon reported operating profit of $1.84 billion, more than four times the $436 million recorded in  same quarter a year ago and more than the $1.04 billion expected by analysts.
  • Amazon reported an operating loss in the rest of the world of $494 million for its retail business, up from a loss of $724 million a year ago and also well ahead of analyst estimates of $797 million, according to FactSet.

Chief Financial Officer Brian Olsavsky in the conference call said  “better-than-expected efficiencies in operations infrastructure costs and generally all of our fixed costs.”  “We’re seeing a lot of our growth areas being fueled by headcount that’s moving within the company. There’s a lot of movement of tech headcount. And so there was less external hiring in the first half of this year,” “We don’t think that that’s necessarily the long-term trend but it certainly created a lot of operating efficiency and that will reset and evaluate where we need to still add people.”

Amazon Web Services

  • Amazon’s cloud-computing business, reported revenue of $6.1 billion, up from $4.1 billion a year ago, with operating profit of $1.64 billion. Analysts on average had expected AWS operating profit of $1.47 billion and revenue of $6.1 billion.
  • Amazon reported total operating income of $3 billion after producing $628 million a year ago and forecasting $1.1 billion to $1.9 billion. Analysts on average were expecting $1.73 billion.
  • AWS has accelerated in the last three quarters. Added 800 new services and features this year.
  • Customers migrated more than 80,000 databases using the AWS database migration service

AMZN Earnings Q2 18

Outlook

$AMZN  will factor into the forecast for the third quarter gains from the record Prime Day.

Amazon predicted third-quarter revenue of $54 billion to $57.5 billion, and operating income of $1.4 billion to $2.4 billion. Analysts on average were predicting operating income of $1.25 billion on sales of $58.07 billion, according to FactSet

 

Amazon Q2 Earnings Preview

What Analysts Will Be Watching

Prime Membership 

The release comes after CEO Jeff Bezos revealed for the first time its global Prime membership total in a letter to shareholders last quarter when it went over 100 million members.

Deutsche Bank’s Lloyd Walmsley says he likes the “momentum” in Amazon’s Prime membership service, and Amazon’s recent price increases there.  "Amazon is seen as the alternative to [Alphabet's] (GOOGL) Google and Facebook (FB),” he wrote.

e-Commerce Expansion

Investors will want to hear Amazon's  e-commerce expansion into retail markets like apparel and grocery, in particular Wholefoods.

Piper Jaffrey’s Michael Olson also ranked Amazon as his number one pick heading into earnings with his “Inaugural Faang Rank,” in which he attempts to “pick your favorite child.” Is this just getting a little silly?  Note he has an Overweight rating on all the Faang names.  He wrote of the “massive new addressable markets that Amazon is attacking,” across grocery, pharmaceuticals, gaming and others.”

By the way his Faang ranks are 1. Amazon $AMZN 2. Netflix $NFLX 3. Apple $AAPL 4, Facebook $FB 5. Alphabet $GOOGL.

Amazon Web Sevices (AWS)

The biggie is cloud behemoth Amazon Web Services (AWS) cloud. Microsoft and SAP both reported robust Cloud numbers last week. The big question is that from AWS or new customers?

Deutsche Bank’s Lloyd Walmsley, rates $AMZN his “Top Pick,” and reiterated a Buy rating heading into earnings and raised his price target to $2,200 from $1,800, writing that worries about higher spending are offset by the company’s expanding empire of initiatives.

"We recognize the concerns, however modest, regarding potential for higher near-term investment in fulfillment facilities, last-mile delivery, international markets (particularly another $2B in India), AWS. These concerns are far outweighed by the large and expanding TAM most recently with the acquisition of PillPack as well as the expansions into Brazil and Australia,” his note said.

  • Shares closed Friday at $1,817.75  with a 52-week range is $931.75 to $1,858.88

 

Amazon First Quarter Earnings Recap

Earnings

      • Revenue: $51.04 billion vs. $49.78 billion, as estimated, according to Thomson Reuters, includes sales from Whole Foods, increased 43 percent year-over-year.
      • EPS: $3.27 per share vs $1.26 per share, as estimated, according to Thomson Reuters (not comparable)
      • AWS revenue: $5.44 billion vs. $5.25 billion, as estimated, according to FactSet Amazon's revenue, which includes sales from Whole Foods, increased 43 percent year-over-year.

Amazon.com, Inc. NASDAQ: $AMZN

  • Market Reaction > After hours 1,618.02 +100.06 (+6.59%) (New ATH $1625.01)

“AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down.  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.” said Jeff Bezos, Amazon founder and CEO.

Highlights

      • North America revenue rose 46 percent to $30.7 billion,
      • International sales rose 34 percent to $14.8 billion.

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)

Amazon's cloud business smashed analyst estimates, with revenue climbing 49 percent in the first quarter. Amazon Web Services reported sales on Thursday of $5.44 billion, compared to the $5.26 billion average estimate of analysts surveyed by FactSet.

AWS contributed about 11 percent of Amazon's total revenue for the period, up from 8.5 percent in the prior quarter. AWS continues to be a big revenue driver and even larger profit engine for its parent company, which dominates the low-margin e-commerce market.

AWS architecture

In cloud-computing infrastructure, Amazon has a substantial market share lead over Microsoft Azure, Google's Cloud platform and IBM, as well as other players like Alibaba and Oracle. While AWS has maintained growth above 40 percent, Microsoft and Google are currently expanding much faster and picking up share. AWS produced $1.4 billion in operating income in the first quarter. That accounted for 73 percent of Amazon's $1.93 billion in operating income.

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.

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.

 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, Jeff Bezos recently said $AMZN has over 100 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.

Last year 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.

Brick and Mortar Acquisitions and Partnerships

Over the past few years 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.

Outlook

      • Amazon completed the Whole Foods acquisition in late August 2017.
      • $AMZN's current growth is expected to come from existing businesses, 
      • Amazon gave second-quarter revenue guidance in the range of $51.0 billion to $54.0 billion, in-line with street estimate of $52.2 billion.
      • Operating income is expected to fall between $1.1 billion and $1.9 billion, exceeding the $1.01 billion street estimate.

Source: Amazon.com, Inc

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