Amazon beats the Street on earnings: investors enthralled by cloud computing, advertising
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Amazon beats the Street on earnings: investors enthralled by cloud computing, advertising

Ecommerce kingpin Amazon reported earnings at the end of last week that once more overshot analysts’ expectations, and demonstrated an incredibly profitable business. Particularly interesting to investors were the company’s moves in advertising and cloud computing – both of which are more profitable than its core business of online retail.

Amazon’s share price has risen by 55% year to date

graph 3007 amazon

SOURCE: Yahoo Finance

Amazon’s revenue for the second quarter came in at $52.89 billion. That’s a 39% increase from revenue in the second quarter of 2017, but still falls short of Wall Street’s predictions ($53.37 billion). However, the company more-than made up for that slight miss with an astounding beat on earnings: analysts’ expected to see earnings per share (EPS) of $2.48, but the company more than doubled it, returning $5.07 per share.

Capping these impressive results was a positive forecast. For the current quarter, Amazon expects operating income in the range of $1.4 billion to $2.4 billion on revenues between $54 billion and $57.5 billion. Analysts were looking for an operating income of $1.28 billion on $58 billion in sales.

The real strength of these results is that they demonstrate a stable and profitable business – despite the face that Amazon is investing in new areas like groceries and prescription drugs. That’s an incredibly powerful message to send investors: that a business can be safe while taking risks. The company’s results were also timed well, closely following Facebook’s precipitous decline, and adding a little positivity back into the tech sector.

Looking back at the numbers briefly, it is worth singling out Amazon Web Services (AWS) for comment, as this is the segment of the business that might have investors most excited. AWS continues to grow at a staggering rate – this quarter, its revenue increase by 49% year on year, to $6.11 billion. That’s a beat against an already-ambitious consensus estimate of $5.98 billion. AWS’s competitors are growing too, but the segment remains a standout against its peers, unchallenged in terms of customers, features, and ecosystem.

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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