Amazon crushes the Street’s expectations, becomes far more profitable
Ecommerce giant Amazon continued its lengthy run of success by smashing Wall Street’s expectations when it reported quarterly earnings at the end of last week. The company, which is currently the third most valuable country in the world after Microsoft and Apple, has arguably fared better than any of its Big Tech peers in the media so far this year. It’s also outperformed on the market (yes, Facebook’s share price has risen more since January 1, but it also fell far more precipitously in the second half of 2018). As last week’s reports demonstrate, the company’s outperformance in these areas is based on solid fundamentals!
Amazon’s share price has appreciated by 29% year to date
Source: Yahoo Finance
Here are the headline numbers: Amazon matched analysts’ expectations on revenue for the quarter, returning an impressive $59.7 billion. But on earnings, it absolutely crushed consensus estimates. The Street had expected Amazon to return earnings of $4.72 per share. Instead, it delivered $7.70 per share. That’s interesting because it shows that, while the days of Amazonian growth vastly outpacing expectations may be behind us, the company is now becoming massively profitable as it tightens margins.
Don’t be fooled – the company is still growing at a clip that most companies would kill for. Revenue this year came in 16.9% higher than in the year-ago quarter. And revenue from Amazon Web Services – a growth driver for the business – came in at $7.7 billion. That’s in-line with expectations, but it also represents a 41% jump, year on year.
There were lots of takeaways from the quarter, and no doubt they’ll continue to filter out over the next week or two. But here’s one that stands out: a major evolution of Amazon Prime might be on the way. That’s important because Prime has been a huge driver of growth, and also because it seems to have petered out: domestically, at least, the numbers aren’t going up as much as they used to be. Could free one-day shipping change that? On a conference call Thursday afternoon, the company’s chief financial officer, Brian Olsavsky, said that Amazon could spend $800 million to convert Prime’s current free two-day shipping into free one-day shipping:
“We’re currently working on evolving our Prime free two-day shipping program to be a free one-day shipping program. We have been offering obviously faster than two-day shipping for Prime members for years — one day, same day, even down to two-hour delivery for Prime Now —so we’re going to continue to offer same day and Prime Now, morphing into or evolving into a free one-day offer.”
Dominion holds Amazon in its Global Trends Ecommerce Fund.
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