Amazon has done it again. Moments ago Jeff Bezos’ company reported Q2 earnings that blew away expectations, when it printed revenues of $30.4 billion, well above the expected $29.6 billion, up 31% Y/Y, and generating EPS of $1.78 more than 50% higher than the $1.12 expected.
However, it is what drove this surge in profitability because while AMZN reported a respectable jump in its North American retail operating income which doubled from $348MM a year ago to $702MM in the current quarter, or a 3.9% profit margin, it was Amazon’s cloud service, the AWS that was the standout with a whopping 718MM in profit, a whopping 24.9% margin on $2.9 billion in AWS sales beating expectations of a $2.79 billion in revenue, and up from the 23.5% margin in Q1. The AWS profit was also higher than the profit reported by any other part of the company.
Cloud revenue growth was 58% in the quarter, modestly less than 64% in Q1, and down from 81% a year ago, was responsible for 9.4% of total revenue while generating more than half of total profits.
This is what Jeff Bezos said about the quarter:
“It’s been a busy few months for Amazon around the world, and particularly in India — where we launched a new AWS Region, introduced Prime with unlimited free shipping, and announced that Prime Video is coming soon, offering Prime members in India exclusive access to Amazon Original Series and Movies — including original content featuring top Indian creators and talent,” said Jeff Bezos, founder and CEO of Amazon.com. “The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response.”
The company also laid out the following guidance:
- Net sales are expected to be between $31.0 billion and $33.5
billion, or to grow between 22% and 32% compared with third quarter
2015; this is generally above the Wall Street consensus expected $31.6 billion. - Operating income is expected to be between $50 million and $650 million, compared with $406 million in third quarter 2015; this was below the Wall Street consensus estimate of $815million.
The guidance may also be the reason why unlike last quarter, the stock saw some early weakness after the report; however, with Amazon traditionally lowballing expectations, we doubt this will be a sufficient reason to keep the stock lower in the aftermarket session, and expect it to surge to new all time highs shortly and continue trading at some ridiculous three digit multiple.
Overall sales growth also picked up to 30% from 29% last quarter as the company boosted its total headcount to a record 268,900 (mostly part-time) employees.
More importantly, consolidated operating margin has now certainly turned the corner, rising from 3.7% to 4.2% courtesy of AWS, the highest margin since 2010.
Finally, Amazon’s Free Cash Flow, long time a concern to shareholders, is soaring and in the current quarter Amazon reported $7.3 billion in FCF, matching the highest on record.
The stock, after some initial trepidation, has read through the results, and is liking the earnings report, up 2% in the after hours and is now at $770 after dropping to $720 earlier in the session.
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