Wall Street expected big things from Amazon in the second quarter. And the e-commerce giant has delivered tremendously – at least the bottom line.
The Seattle-based company posted a $ 2.5 billion gain over the period. Not only was this a quarterly record for Amazon, but it was nearly 13 times greater than the company's earnings in the second quarter of last year. Amazon returned $ 5.07 per share, more than double what the analysts had predicted.
The company's revenue grew an impressive 39% to 52.9 billion US dollars, but Wall Street expectations fell short of expectations.
"It was a strong quarter," said Brian Olsavsky, Amazon's chief financial officer, at a conference call with analysts.
Olsavsky attributed the company's much better-than-expected balance sheet to its ability to keep production costs down, and its rapidly growing and highly profitable advertising business.
"Advertising is starting to affect our gross profit," he said.
Also in the third quarter, Amazon offered a more optimistic outlook for the bottom line than analyst forecasts. However, the company's good news was clouded by the fact that it missed Wall Street's second-quarter sales expectations and predicted that its third-quarter sales would lag behind its earlier predictions.
Investors first praised the results and saw the company's shares rise up to 4% in after-hours trading. After the call, the stock trended $ 65.83 or 3.6% to $ 1,873.83.
Below the Line, Amazon Outperforms Wall Street Predictions
Here's what the company reported and how it was compared to what Wall Street was looking for:
- Revenue: $ 52.88 billion Dollar. Analysts were looking for $ 53.35 billion. In the same period last year, Amazon had a turnover of 37.96 billion US dollars.
- Earnings per share: 5.07 USD. Wall Street had priced $ 2.49 per share, but these numbers may not be comparable. Amazon generated earnings per share of $ 0.40 per share for the second quarter of last year.
Here's what the company predicts for the third quarter and how it is compared to previous analyst forecasts:
- Sales: $ 54 to $ 57.5 billion. Wall Street previously forecast $ 58.03 billion. In the third quarter of last year Amazon achieved a turnover of 43.74 billion US dollars.
- Operating income: 1.4 to 2.4 billion US dollars. Wall Street had expected $ 1.28 billion. In the same period last year, the company achieved operating income of $ 347 million, including Whole Foods results.
- Earnings per share: Amazon has not provided a profit forecast. Analysts expected earnings per share of $ 1.68 for the third quarter. In the same period last year, it has earned $ 0.52 per share.
The Company benefited from Favorable Exchange Rates
Amazon's second-quarter earnings benefited from a kind of artificial tailwind – the appreciation of the dollar against other currencies, which boosted the dollar value of its overseas sales. This factor contributed $ 760 million to its revenue and $ 466 million to its net income for the period, the company said.
Without the currency effect, Amazon's loss of revenue would have been even more dramatic, with revenue growth of 37% instead of 39% during that period. Without this boost and a few other minor adjustments, Amazon would have posted $ 2.07 billion or $ 4.14 per share for the quarter, outperforming analysts' forecasts.
But Amazon's results were more than just a product of a stronger dollar. The company experienced strong growth in all business areas, especially in the profit zone. In particular, the North American retail business has performed well.
Over the same period, this segment's revenue increased 44% to $ 32.17 billion, helped in part by the addition of Whole Foods, which Amazon did not own in the second quarter of last year. North American retail operating income jumped from $ 436 million last year to $ 1.84 billion.
However, advertising fueled it – as well as cost capping
Amazon's international retail sales increased 27% to $ 14.61 billion year over year, reducing operating loss from $ 724 to $ 494 million Million a year earlier.
Meanwhile, Amazon Web Services, the company's cloud computing business, posted a 49% jump over the second quarter of last year to $ 6.11 billion. It posted operating income of $ 1.64 billion, compared to $ 916 million a year ago.
And his advertising business continued to increase. Amazon's "other" revenue, which is primarily ad sales, jumped a whopping 132% to $ 2.2 billion in the quarter. This growth has begun to affect the growth rates and profitability of Amazon's two North American and international businesses, Olsavsky said.
But also on the cost side, the company has done well. Total operating expenses increased 33.7% compared to the second quarter of the previous year, significantly slower than the rate at which sales increased by 39.3%.
While the company's fulfillment cost increased nearly 54% in the quarter, all other costs – fulfillment, marketing, technology, administration – grew much more slowly than revenue.
Olsavsky noted that Amazon slowed its hiring freeze in the second quarter and severely curtailed the expansion of new fulfillment centers. He also focused on improving the efficiency of his data centers, he said.
Amazon saw "better than expected efficiency gains in its operations," he said.
The company also benefited from dramatically lower taxes in the quarter. During that period, despite its unexpected earnings, the company provided only $ 74 million in taxes, compared to $ 467 million a year ago.