Amazon reported second-quarter Revenue earnings after the bell on Thursday, demolishing earnings per share expectations but falling slightly short on revenue.Amazon stock initially jumped 4 percent in after-hours trading.
Amazon earnings by the numbers. The iconic online shopping giant posted EPS of $5.07, destroying the $2.50 per share analysts expected.
Revenue clocked in at $52.89 billion, up 39 percent year-over-year. Wall Street expected revenue of $53.27 billion in the quarter.
Analysts surveyed by FactSet were expecting AWS revenue of $6 billion.
As the high-margin cloud computing business arm of the company, AWS essentially helps finance all the rest of Amazon’s low-margin retail endeavors, and is largely responsible for the massive gains in the Amazon stock price over the past few years.
Going into the report, shares of the e-commerce leader had been one of the top large-cap tech performers in the market. At the close of trading on Thursday, Amazon stock was up 79 percent in the last year and 59 percent in 2018 alone.
Clearly the incredible earnings beat is the headline here. Amazon is a notoriously tough company to break down, from an analyst’s point of view, and it’s not unusual for EPS to come in wildly above or below the consensus.
In recent years, it’s usually been the former.
Still, a company is more than just its top- and bottom-line. Here’s a closer look at what investors learned from the Q2 AMZN earnings report.
Third-party seller services revenue rose 36 percent to $9.7 billion. Think of this primarily as revenue from the Fulfillment by Amazon (FBA) service for sellers, where the company handles the back end and logistics, for a fee, for third-party sellers on the site.
Subscription services revenue, which includes receipts from Amazon Prime members, subscribers to its streaming video and music services, and Audible memberships, rose 55 percent to $3.4 billion.
There are now more than 100 million Amazon Prime members, and memberships costs $119 annually or $12.99 for the month-to-month plan.
Another important note for Amazon shareholders: unlike fellow FANG member Facebook (FB), which suffered a record one-day plunge in its stock price after its second-quarter report, Amazon growth in North America remains robust: revenue grew 44 percent there, and by “just” 27 percent abroad.
A new era of profitability. “Margins will drive the narrative for Amazon moving forward. Ad dollars are flowing into Amazon Marketing Services, which will significantly amplify operating income and profits globally,” says Chaitanya Chandrasekar, co-founder and CEO at QuanticMind.
It’s tough to ask for much more “amplification” of profits than investors got Thursday.
Operating income in North America rose 321 percent to $1.8 billion. Though still operating at a loss abroad, Amazon’s North American business and the success of AWS (its operating income rose 79 percent to $1.6 billion) more than made up for that shortfall.
Amazon valuation. Essentially since the company first went public in 1997, the question of how to value AMZN stock has been constantly debated. Shares have always traded at high earnings multiples, since CEO Jeff Bezos has never made a point of consistent profitability, instead seeking to grow market share.
A little more than two decades later, consistent profitability appears to have finally arrived.
And yet, still, shares traded at a sky-high 92 times forward earnings as of Thursday afternoon. Valuation, especially of a dynamic, diversified growth company like Amazon, is more art than science, but the market seems willing to pay almost any price for growth like this.
“Investors for now will continue to look past hyperbolic price-to-earnings ratios and bet on AWS and its margins growth to extend its lead over its publicly traded cloud peers,” says Said Ouissal, CEO and co-founder at Zededa.
“That being said, Microsoft and Alphabet are poised to steal market share if they miss the bullseye even once,” Ouissal says.
A pessimist can look at the slight revenue miss and see a glass half-full. Although arguably priced for perfection, Bezos and his team have performed darn close to perfectly, and with exciting growth opportunities in Alexa, drone delivery, devices, AI and so much more, this is a hard company not to like.