Media Moves

Coverage: Amazon’s earnings overwhelm Wall Street

April 27, 2018

Posted by Chris Roush Inc. on Thursday reported its best revenue growth in more than six years while topping $1 billion in profit for the second straight quarter, surprising investors who expected a more modest profit.

Eugene Kim of had the news:

Amazon’s revenue, which includes sales from Whole Foods, increased 43 percent year-over-year. Its North America revenue jumped 46 percent to $30.7 billion, while international sales grew 34 percent to $14.8 billion.

Net income more than doubled to $1.6 billion, underscoring the company’s renewed focus on growing profit margins.

AWS sales grew 49 percent year-over-year, reaccelerating its growth rate, which had dropped to as low as 42 percent in the third quarter of last year. It generated $1.4 billion in operating income, accounting for 73 percent of Amazon’s total operating income.

In a prepared statement, Amazon CEO Jeff Bezos highlighted the massive success of AWS.

“AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” said Bezos. “As a result, the AWS services are by far the most evolved and most functionality-rich.”

Troy Wolverton of Business Insider reported that the operating income was nearly twice what Wall Street expected:

The company recorded $1.9 billion in operating income in the quarter. That was much better than analysts were expecting. In February, the company forecast that its operating income for the first quarter would likely range from $300 million to $1 billion, influencing analysts’ profit predictions.

Several factors played into the better-than-expected results, Brian Olsavsky, Amazon’s chief financial officer, said in a conference call with analysts. The company’s revenue came in higher than Amazon expected. Because much of the company’s costs — such as those related to running its fulfilment centers and data centers — are fixed, a good portion of the extra revenue trickled down to Amazon’s bottom line, he said.

Additionally, at the end of the fourth quarter, the company had relatively high inventory levels and was worried that it would incur significant costs shifting products around among its warehouses to ensure each one had optimal levels, Olsavsky said. But the better-than-expected sales in the period meant the company didn’t have to do that rebalancing of inventory, he said.

Shira Ovide of Bloomberg Gadfly wrote that Amazon’s profit is impressive because of its history of reinvesting in the business:

Amazon has a reputation for spending as much money as it can get its hands on, and that reputation is deserved. The company has poured money into building up its e-commerce business in India and other international markets, its cloud-computing business, its Echo line of voice-activated gadgets, programming for its web video service and its packing, sorting and shipping logistics.

That is quite a list of spending priorities, and it shows in Amazon’s results. The company’s core operating expenses — excluding its cost of sales covering items like payments for products that Amazon sells online — is consistently growing faster than Amazon’s rapidly growing revenue. Revenue in Amazon’s first quarter rose 43 percent from a year ago, which didn’t include sales from the Whole Foods supermarket chain. Amazon’s core operating costs climbed even faster at nearly 50 percent. This cost line has been inching up gradually, and the increase in the first quarter was the fastest rate since at least 2012.

What has changed, however, is that Amazon is becoming a fundamentally more profitable company. I know that’s a weird sentence to read about a company with less than 4 percent operating profit margins. But what I mean is that Amazon’s gross profit margin — its revenue minus basic costs to purchase products, buy packing supplies and grab digital video programming — is growing. Gross margin was nearly 40 percent in the first quarter compared with consistent margins in the 30 percent range for several years.

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