It has been about a month since the last earnings report for Amazon.com, Inc. (AMZN - Free Report) . Shares have added about 5.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is AMZN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Amazon delivered first-quarter 2018 earnings of $3.27 per share, crushing the Zacks Consensus Estimate by $2.05 (168%) and also soared 121% year over year.
Net Sales of $51.04 billion comfortably surpassed the Zacks Consensus Estimate of $50.17 billion. The figure surged almost 43% year over year and beat management’s guided range of $47.75-$50.75 billion. After adjusting for foreign exchange, revenues increased 36% year over year.
North America revenues (60.2% of sales) jumped 46.4% from the year-ago quarter to $30.73 billion. International revenues (29.1% of sales) increased 34.5% to almost $14.88 billion.
Amazon Web Services (AWS) Sizzles
AWS revenues climbed 48.6% year over year to $5.44 billion primarily driven by expanding customer base.
AWS launched two Availability Zones (“AZ”) and one Local Region in Osaka, Japan during the quarter. The company plans to open 12 more AZ across four regions (Bahrain, Hong Kong, Sweden) and a second GovCloud Region in the United States by early 2019.
AWS now operates 54 AZ across 18 geographic regions globally.
AWS’ customer base continued to expand in the reported quarter. The company added enterprise customers like GoDaddy, Cox Automotive, Shutterfly, NextGen Healthcare, Amway, LG Electronics among others. Pfizer has selected Amazon Redshift as the enterprise standard for its mission critical analytical applications.
AWS machine learning services have also gained significant traction with active users soaring more than 250% in the last year driven by the broad adoption of Amazon SageMaker. Amazon Aurora continues to be the fastest growing service in the history of AWS.
During the quarter AWS launched AWS Secrets Manager, a new service that helps customers protect access to their applications, services and IT resources.
AWS also announced Amazon Simple Storage Service (Amazon S3) One Zone-Infrequent Access (Z-IA) and general availability of Amazon S3 Select.
Amazon Transcribe and Amazon Translate, two new machine learning services which are part of the AWS machine learning portfolio, are now generally available.
Amazon in collaboration with VMware announced the expansion of VMware Cloud on AWS into Europe and powerful new capabilities for migrating and protecting applications.
Expanding Delivery for Prime Members
Amazon introduced grocery delivery from Whole Foods Market in 10 cities in the United States, offering customers free two-hour delivery on thousands of natural and organic groceries and locally-sourced items.
Moreover, Amazon, Chase, and Whole Foods Market announced that eligible Prime members can earn 5% back on Whole Foods Market purchases when using the Amazon Prime Rewards Visa Card.
Further, Amazon launched Fulfillment by Amazon (“FBA”) in Australia. In Europe, the company launched additional locations for public fulfillment center tours in Spain, Italy, and the U.K., joining over 25 other sites across North America and Europe.
Amazon now has 15 fulfillment centers in the United States with solar panels producing power. The company is committed to host solar energy systems at 50 fulfillment centers by 2020. The company intends to power all global infrastructures using 100% renewable energy.
Amazon provided green signal to new series Cortés from executive producers Steven Spielberg and Steven Zaillian. Moreover, Amazon Studios acquired the global television rights to Consider Phlebas, the first novel of the Culture series by Iain M. Banks.
Prime Video premiered new seasons of Bosch (season four) and Sneaky Pete (season two) during the quarter.
Notably, Amazon Music Unlimited subscriptions has surged more than 100% over the past six months.
Alexa Features Expanding
Amazon has added a number of features to Alexa, which makes it more customer and developer friendly. The company introduced FreeTime on Alexa, exclusively for kids. Amazon also announced the Echo Dot Kids Edition.
The company released new modes — Follow-Up, Alexa Donations, Brief Mode — to Alexa. While the Follow-Up mode makes Alexa more conversational, Brief Mode shortens its responses. Alexa Donations allow customers to make donations to charities via voice using Amazon Pay.
Users now have the ability to add music and podcasts to daily Alexa Routines. The company is also providing hands-free Alexa support on Fire 7 and Fire HD 8 tablets when plugged in, so customers can simply use their voice to ask Alexa on their tablet to perform multiple tasks.
Moreover, Amazon introduced Alexa Skill Blueprints for customers with no programming experience. The easy-to-use templates now allow customers to create their own personalized Alexa skills.
The company also released new developer tools and Alexa features to make voice-controlled entertainment easier. This includes the expansion of far-field voice control on Fire TV for the U.K. and Germany.
Amazon introduced new Alexa Skills Kit developer console, which helps developers create, manage, and publish Alexa skills. Alexa now features more than 40,000 skills created by third-party developers.
Amazon introduced new ways for customers to communicate using Alexa, including the launch of Alexa Calling and Messaging on Fire, iOS, and Android tablets, as well as Alexa Announcements, a new feature to make one-way announcements to all other Echo devices in the household.
Alexa is now available on even more devices via the Alexa Voice Service, including new car models from Toyota.
Product sales (61.9% of sales) increased 33.2% year over year to $31.61 billion. Service sales (38.1% of sales) surged 62.2% from the year-ago quarter to $19.44 billion.
Operating expenses were $49.12 billion, up 41.5% from the year-ago quarter. Cost of sales, fulfillment, marketing, technology & content, general & administrative and other operating expenses increased 37%, 65.9%, 40.6%, 40.4%, 34.2% and 43.2%, respectively.
As percentage of revenues, operating expenses declined 100 basis points (bps) on a year-over-year basis to 96.2%. Cost of sales, marketing, technology & content, and general & administrative expenses declined 260 bps, 10 bps, 20 bps and 10 bps, respectively. Only fulfillment expenses increased 210 bps from the year-ago quarter.
Operating income jumped 91.7% from the year-ago quarter to $1.93 billion. Operating margin expanded 100 bps from the year-ago quarter to 3.8%.
Segment wise, North America operating income soared 92.8% from the year-ago quarter to $1.15 billion. AWS operating income surged 57.3% year over year to $1.40 billion. International reported a loss of $622 million, wider than year-ago quarter loss of $481 million.
Amazon and Best Buy announced a multi-year, exclusive collaboration to bring the next generation of Fire TV Edition smart TVs to customers in the United States and Canada.
During the quarter, Amazon acquired Ring, a home security company.
For second-quarter 2018, Amazon expects net sales between $51 billion and $54 billion. The figure is anticipated to grow in the range of 34-42% on a year-over-year basis. Management projects a favorable impact of approximately $1.2 billion or 320 bps from foreign exchange rates.
Operating income is expected between $1.1 billion and $1.9 billion, compared with $628 million in second-quarter 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been 13 revisions higher for the current quarter compared with one lower.
At this time, AMZN has an average Growth Score of C. Its Momentum is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise AMZN has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.