- REUTERS/Rex Curry
- Amazon on Thursday reported a $2.5 billion second-quarter profit, which far exceeded Wall Street’s expectations.
- It also offered a better-than-expected forecast for its operating profit for the third quarter.
- Although its revenue fell shy of projections, investors still applauded the results, sending the stock up as much as 4% in after-hours trading.
- All parts of Amazon’s posted strong gains, but its advertising business and its North American retail segment were standouts.
Wall Street expected big things from Amazon in the second quarter. And the e-commerce giant delivered in a huge way – at least, on the bottom line.
The Seattle company posted a $2.5 billion profit in the period. That wasn’t just a quarterly record for Amazon, but it was nearly 13 times bigger than the profit the company recorded in the second quarter last year. On a per-share basis, Amazon’s earned $5.07, which was more than twice what analysts had projected.
The company’s sales grew an impressive 39% to $52.9 billion, but they fell shy of Wall Street’s expectations.
“It was a strong quarter,” Brian Olsavsky, Amazon’s chief financial officer, said on a conference call with analysts.
Olsavsky attributed the company’s much better-than-expected bottom line to its ability to hold the line on operating costs and to a boost from its rapidly growing and highly profitable advertising business.
“Advertising is starting to make an impact on our gross profit,” he said.
Amazon also offered a more optimistic outlook for its bottom line in the third quarter than analysts were forecasts. But the company’s good news on its bottom-line was tempered by the fact that it missed Wall Street’s revenue expectations in the second quarter and projected its sales will fall shy of their previous forecasts in the third quarter.
Investors initially cheered the results, sending the company’s stock up as much as 4% in after-hours trading. Following the call, the stock was trading up $65.83, or 3.6%, to $1,873.83.
On the bottom line, Amazon bested Wall Street’s forecasts
Here’s what the company reported and how it compared with what Wall Street was looking for:
- Revenue: $52.88 billion. Analysts were looking for $53.35 billion. In the year-ago period, Amazon recorded $37.96 billion in sales.
- Earnings per share: $5.07. Wall Street had projected $2.49 a share, but those numbers might not be comparable; Amazon posted a per-share profit of $0.40 in the second quarter last year.
Here’s what the company is forecasting for the third quarter and how that compares with analysts’ previous projections:
- Revenue: $54 billion to $57.5 billion. Wall Street’s prior forecast was $58.03 billion. In the third quarter last year, Amazon saw $43.74 billion in revenue.
- Operating income: $1.4 billion to $2.4 billion. Wall Street had been expecting $1.28 billion. In the same period last year, the company posted an operating profit of $347 million, including results from Whole Foods.
- Earnings per share: Amazon didn’t offer earnings guidance. Analysts were expecting per-share profits of $1.68 for the third quarter. In the same period last year, it earned $0.52 a share.
The company benefitted from favorable exchange rates
Amazon’s second-quarter results did benefit from a kind of artificial tailwind – the dollar’s appreciation against other currencies, which boosted the dollar value of its overseas sales. That factor added $760 million to its revenue and $466 million to its net income in the period, the company said.
Without the foreign-exchange effect, Amazon’s revenue miss would have been even more dramatic, as its sales growth for the period would have been 37% instead of 39%. Without that boost and a few other minor adjustments, Amazon would have posted $2.07 billion in income for the quarter, or $4.14 a share – which still far exceeded analysts’ forecasts.
But Amazon’s results were more than just a product of a stronger dollar. The company saw strong growth – particularly on the bottom line – in all its business segments. Its North American retail business specifically fared well.
In the period, that segment’s sales rose 44%, to $32.17 billion, boosted in part by the addition of Whole Foods, which Amazon didn’t own in the second quarter last year. More impressively, the North American retail businesses operating profit jumped to $1.84 billion from $436 million last year.
But advertising gave it a boost – as did holding the line on costs
Amazon’s international retail business’ revenue jumped 27% from the year-ago period, to $14.61 billion, and cut its operating loss to $494 million from $724 million a year earlier.
Meanwhile, Amazon Web Services, the company’s cloud-computing business, saw sales jump 49% from the second quarter last year, to $6.11 billion. It posted an operating profit of $1.64 billion, up from $916 million a year ago.
And its advertising business continued to surge. Amazon’s “other” revenue, which is largely comprised of ad sales, grew a whopping 132% in the quarter to $2.2 billion. That growth is starting to effect the growth rates and profitability of both Amazon’s North American and international business segments, Olsavsky said.
But the company also did well on the cost front. Its total operating expenses grew 33.7% from the second quarter last year, which is a significantly slower pace than the 39.3% rate at which its sales grew.
While the company’s fulfilment costs surged nearly 54% in the quarter, all of its other costs – fulfillment, marketing, technology, administrative – grew much slower than its sales.
On the call, Olsavsky noted that Amazon slowed the pace of its hiring in the second quarter and markedly decreased its build-out of new fulfilment centers. It also focused on wringing out efficiencies in its data centers, he said.
Amazon saw “better-than-expected efficiencies in its operations,” he said.
The company also benefited from dramatically lower taxes in the quarter. In the period, despite its windfall profit, the company allocated just $74 million for taxes, compared with $467 million a year ago.