Amazon smashes expectations, share price hits high point
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Amazon smashes expectations, share price hits high point

Ecommerce giant Amazon has crushed analysts’ expectations for its first quarter earnings, released last Thursday. The company beat predictions on revenue by well over a billion dollars ($51.04 billion against expectations of $49.78 billion), overshot estimates on earnings per share by well over double ($3.27 against expectations of $1.26), and outperformed in a number of critically important segments for the business’s future (Amazon Web Services and its advertising business).

Amazon’s share price has risen by 36% so far this year

graph 3004 amazon

SOURCE: Yahoo Finance

Amazon saw huge increases across the board. Its revenue grew by 43% year on year, with North America (its biggest market) increasing by 46% (that figure includes sales through Whole Foods, which Amazon acquired last year). The company saw its net income more than double to $1.6 billion “underscoring” according to CNBC “the company’s renewed focus on growing profit margins.”

One of Amazon’s most important segments is Amazon Web Services (AWS). This cloud-computing business is running out ahead of competitors, and the industry overall will experience huge growth, as the Internet of Things – which will be powered by the cloud – becomes a reality. Hence, AWS’s continued dominance in this area is a very bright spot for investors. In its first quarter, AWS’s sales grew by 49%, year on year, generating 73% of Amazon’s total operating income.

These results were impressive enough, and the business important enough, that Amazon’s founder and CEO Jeff Bezos singled AWS out for special mention: "AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down. As a result, the AWS services are by far the most evolved and most functionality-rich."

Some other important facts: Amazon’s “other” revenue (primarily its advertising business) increased by an unbelievable 139% (to $2.03 billion in sales) from the year-ago quarter. This strongly suggests that predictions Amazon will become the “third-man” in online advertising (the first two “men” being Google and Facebook) were correct. But the speed at which Amazon’s ad business is growing merits attention.

Amazon Prime, which has been a cornerstone strategy in the company’s wider search for growth, continued to impress. A week before earnings release, Bezos revealed that Prime now has more than 100 million members worldwide. Subscription services (which include Prime as well as a variety of other services) saw a revenue rise of 60% from the year-ago quarter to $3.1 billion.

Disclosure

Dominion holds Amazon in its Global Trends Ecommerce Fund.


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