BackAmazon profit beats estimates, stocks soar
Net sales increased to $23.18 billion in the second quarter, up 20% year-on-year versus analyst estimates of $22.39 billion
Premium
New Delhi: E-commerce giant Amazon.com Inc. beat all analyst expectations when it announced its second quarter results on Thursday.
Net sales increased to $23.18 billion in the second quarter, up 20% year-on-year (y-o-y) versus analyst estimates of $22.39 billion. The earnings per share of $0.19 were modest, but still much better than the $0.27 per share loss recorded in the second quarter of 2014. This earnings performance far surpassed expectations, as analysts were expecting a loss of $0.14 per share.
Avid stock market watcher Adam Levine-Weinberg wrote on The Motley Fool: “Amazon also crushed expectations in terms of profitability. The high-end of its guidance called for operating income of $50 million. This guidance figure is usually fairly conservative, but for Q2, it wasn’t even in the ballpark, as operating income reached $464 million."
Buoyed by surprisingly strong quarterly earnings, the Seattle-based company’s shares soared more than 17% in aftermarket trading on Thursday to $565.50. That put Amazon’s market value at $263.3 billion in the after hours session. In comparison, Wal-Mart’s market value at the market close on Thursday was $235.6 billion, which led analysts to conclude that in after-hours, at least, Amazon.com is now bigger than Wal-Mart Stores (based solely on market capitalisation). Of course, there’s no guarantee Amazon’s market value will stay above that of Walmart.
The change of guard reflects the growing consensus that online retailing will play an increasingly central role in the global economy over the coming decades and emphasizes the high premium investors are placing on the growth they expect Amazon to deliver.
Research firm Cowen and Company went a step further, saying that it expects the online retailer to overtake Macy’s as the largest domestic apparel retailer in the next year or two. “Amazon is winning in large retail and rech markets given long-term investments, per our proprietary data/analysis," Cowen analyst John Blackledge wrote in a research note. “We expect Amazon to be the #1 US Apparel retailer by 2017, driven by accelerating purchaser growth, and continue to gain traction in other retail verticals."
Cowen’s note can be read in its entirety here.
According to Wall Street experts, the biggest driver behind strong earnings was Amazon Prime, the $99-a-year service that includes expedited shipping at no extra cost. Amazon has rapidly added features to its ‘Prime’ category to lure more members, who usually shop more frequently and buy more items than non-Prime members. The company continues to look for new ways to add Prime members. For example, it had a Prime Day sale earlier this month to coincide with the 20th anniversary of Amazon. Only Prime subscribers could take advantage of the discounts, which led to a surge in membership.
The Seattle Times also attributes the online retailers’ strong results to its cloud-computing unit, Amazon Web Services (AWS). The company began disclosing detailed results from the unit only last quarter, as it became an important piece of its overall business by accounting standards. Second-quarter AWS sales climbed 81% to $1.8 billion, while operating income quintupled to $391 million. If AWS is able to maintain that level of operating earnings in an intensely competitive market that includes giants such as Microsoft and Google, it could help make Amazon more consistently profitable. That prospect, something the Wall Street has long clamoured for, no doubt helped lift Amazon’s shares.
While international results were a bit of a dampener because of foreign exchange rates, the company in its press note called out its performance in India, which it describes as its fastest growing geography in sales, and India’s largest online store with over 25 million products. Amazon launched its retail business in India two years ago, and Bezos visited the country last July, committing to invest $2 billion to expand its Indian business. Bezos also announced that AWS will open a new region in India in 2016, which will enable customers to run workloads in India and serve Indian end-users with even better latency. Read more
Analysts are unanimous that the company’s accelerating revenue growth shows that its strategy of investing heavily in multiple areas is paying off. Investors, meanwhile, are keenly watching the company’s performance as it goes into the third quarter, hopeful that it will be able to serve up substantial profits for its shareholders and continue with the bull run.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
