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Amazon's (AMZN) Q2 Earnings Crush Estimates, Revenues Up Y/Y

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Amazon.com (AMZN - Free Report) reported second-quarter 2020 earnings of $10.30 per share, beating the Zacks Consensus Estimate of $1.74 per share by 491.9%. The bottom line also improved 97.3% from the year-ago quarter and 105.6% from the previous quarter.

Net sales of $88.9 billion comfortably surpassed the Zacks Consensus Estimate of $81.6 billion and exceeded management’s guided range of $75 billion and $81 billion. Further, the figure increased 40.2% on a year-over-year basis and 17.8% sequentially.

North America revenues (62.3% of sales) advanced 43.4% from the year-ago quarter to $55.4 billion. International revenues (25.5% of sales) climbed 38.5% year over year to $22.7 billion. Amazon Web Services (AWS) revenues (12.2% of sales) surged 29% year over year to $10.8 billion.

The top line was driven by strong growth in the online stores sales in the coronavirus-hit second quarter. The company witnessed 49% growth in the online stores from the prior-year quarter. Further, strong momentum across online grocery shopping contributed to the performance.

Additionally, strengthening relationship with third-party sellers remained a major positive. Notably, sales generated by these sellers rose 53% on a year-over-year basis. Further, strong performance delivered by subscription services, which exhibited an improvement of 30% year over year, contributed to the top line.

Notably, shares of the company were up 5.4% in the pre-market trading owing to its stellar second-quarter performance.

The company generated strong profits in the reported quarter despite spending heavily in order to manage the unprecedented situation induced by coronavirus.

As announced during the first-quarter earnings call, the company spent over $4 billion during the second quarter to protect its workforce from COVID-19 and speed up delivery time during this pandemic situation.

Nevertheless, the company generated $5.2 billion worth net income in the second quarter.

Solid customer demand, strong Amazon Web Services (AWS) momentum, expanding smart devices portfolio and robust Prime member engagement remained major tailwinds.

The company experience solid Prime subscription renewal rates during the reported quarter. Additionally, robust grocery sales, which tripled compared with the year-ago quarter, were noteworthy.

Coming to price performance, Amazon has returned 72.9% on a year-to-date basis, outperforming the industry’s rally of 48.4%.

Amazon’s strong global presence remains a major positive. Additionally, growing Prime and AWS momentum, strengthening Alexa skills and expanding smart devices portfolio and growing efforts toward gaining strong traction among small and medium businesses are likely to drive the company’s business in the near term.

 

 

Prime Momentum

Amazon Prime momentum continued to benefit the company during the reported quarter on the back of robustgrocery servicesand customer-oriented benefitsdespite coronavirus-induced disruptions.

The company expanded grocery delivery capacity by 160% in the second quarter, which helped it in gaining strong momentum in online grocery shopping.

Apart from retail benefits, expanding original content and overall content portfolio on Prime Video drove the company’s momentum across the Prime subscribers.

Further, Prime Video premiered original series namely Upload, Season 2 of Homecoming and Season 6 of Bosch during the reported quarter. Further, it premiered a docuseries called Regular Heroes based on the COVID-19 scenario.

Additionally, Amazon expanded its movie portfolio by streaming Selah and the Spades, The Goldfinch, The Vast of Night, 7500, and My Spy during the reported quarter.

Further, it strengthened its Indian movie content portfolio by streaming Ponmagal Vandhal and Gulabo Sitabo.

Furthermore, the launch of Watch Parties feature and Prime Video Profiles was a positive.

Expanding AWS Portfolio: A Key Catalyst

AWS that witnessed significant improvement in the topline, continued to gain strong momentum across several government authorities, health organizations, apex bodies and companies during the coronavirus-hit second quarter courtesy of its highly reliable services portfolio.

During the to-be-reported quarter, Amazon Web Services (AWS) introduced Amazon Honeycode, which is a fully managed service that is ideal for seamless creation of interactive web and mobile applications.

Further, AWS made its three new sixth generation Amazon Elastic Compute Cloud (Amazon EC2) instances namely M6g, C6g and R6g generally available. Additionally, the company has made AWS Snowcone, Amazon Kendra, UltraWarm for Amazon Elasticsearch Service and Amazon CodeGuru generally available during the second quarter.

Further, the company entered into a multi-year agreement with Slack Technologies in the second quarter to offer integrated enterprise software tools.

With the aid of expanding services portfolio, AWS gained strong traction among new customers including IHS Markit, Capella Space and Genesys during the reported quarter.

Further, the company witnessed solid momentum across its sports customers like Budesliga and Formula 1 in the quarter under review.

Alexa & Expanding Smart Devices Offering

Amazon continued to enhance skills and features of Alexa during the reported quarter. Advanced features that include setting of reminders across all Alexa devices, nutrition tips, new notification capabilities with Routines and announcements on smartphones as push notification were added.

Additionally, strengthening international footprint of Alexa Skill Blueprints,which are now available in France, Italy, Mexico, and Spain, remained a tailwind.

Moreover, expanding international availability of the Echo Devices remained positive. The company made Echo Auto available in Australia, Canada, France, Germany, Italy, Spain, and the U.K. It also made Echo Dot with clock and Echo Studio available in Brazil.

Also, the company made eero mesh WiFi systems available in Australia and Mexico.

Furthermore, Amazon unveiled next-generation original Ring Video Doorbell and made Ring Alarm available in Germany, Norway and Sweden during the reported quarter, which expanded its smart doorbell offering.

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote

 

Quarter Details

Product sales (56.5% of sales) increased 40.1% year over year to $50.2 billion. Service sales (43.5% of sales) surged 40.4% from the year-ago quarter to $38.7 billion.

Operating expenses were $83.1 billion, up 37.7% from the year-ago quarter. As percentage of revenues, the figure contracted 170 bps on a year-over-year basis to 93.4%.

Cost of sales, fulfillment, technology & content, marketing, and general & administrative increased 44.9%, 48.9%, 14.6%, 1.3% and 24.4% to $52.7 billion, $13.8 billion, $10.4 billion, $4.3 billion and $1.6 billion, respectively, on a year-over-year basis.

Other operating expenses were $290 million during the second quarter compared with $86 million in the year-ago quarter.

Operating income increased 89.5% from the year-ago quarter to $5.8 billion. Further, operating margin expanded170 bps from the year-ago quarter to 6.6%.

Operating income for AWS was $3.6 billion, up 58.3% year over year.Further, the same for North America improved36.9% from the prior-year quarter to $2.1 billion.

Further, International segment reported operating income of $345 million against a loss of $601 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jun 30, 2020, cash and cash equivalents were $37.5 billion compared with $27.2 billion as of Mar 31, 2020. Further, marketable securities totalled $33.9 billion at the end of the second quarter, up from $22.1 billion at the end of the first quarter.

Long-term debt was $33.1 billion in the reported quarter compared with $23.4 billion in the previous quarter.

Further, the company generated $20.6 billion of cash from operation in the second quarter, which increased significantly from $3.1 billion in the prior quarter.

Guidance

For third-quarter 2020, Amazon expects net sales between $87 billion and $93 billion. The figure is anticipated to improve in the range of 24-33% on a year-over-year basis. The Zacks Consensus Estimate for net sales is pegged at $86.8 billion.

Management projects an unfavorable foreign exchange impact of approximately 20 bps.

Proceeds from operational activities are likely to range from operating income of $2 billion to $5 billion. Notably, the company reported an operating income of $3.2 billion in the year-ago quarter.

This guidance is inclusive of more than $2 billion costs related to COVID-19.

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

JD.com, Inc. (JD - Free Report) , The Kroger Co. (KR - Free Report) and Americas CarMart, Inc. (CRMT - Free Report) are some better-ranked stocks worth considering in the broader Retail-Wholesale sector. While JD.com sports a Zacks Rank #1 (Strong Buy), Kroger and Americas CarMart carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for JD.com, Kroger and Americas CarMart is pegged at 46.79%, 5.5% and 8.4%, respectively.

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