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Amazon Doubles First Quarter Profits

by Paul
Amazon first quarter profits

Online retail king and Cloud computing services champion Amazon has again beaten analyst estimates by more than doubling its first quarter profits. Despite that notable success, which was achieved as a result of costs coming in much lower than expected, the company’s share price has remained relatively steady in afterhours trading. The impressive profit figures were somewhat offset by a sales growth rate of 17%, which represents Amazon’s lowest rate of growth in four years. It was, however, in line with analyst expectations and at the upper end of the company’s own forward guidance range.

Revenues for the quarter came in at just shy of $60 billion with net income (net profit) of $3.6 billion. That compares to $1.6 billion over the same quarter last year and equates to net income of $7.09 a share. AWS, the quickly growing Cloud computing unit and Amazon’s advertising business were the primary contributors to the surprise leap in profits.

After reducing hiring and capital expenditures in 2018, Amazon had expected something of a splurge in 2019. However, operating expenses rose just 13% to $55.3 billion compared to 41% growth over the first quarter of 2018. The lack of expenditure appeared to surprise Amazon itself with chief financial officer Brian Olsavsky commenting:

“We overestimated on what we would spend and hire in the first quarter”.

The Amazon Web Services Cloud services division continues to represent the company’s greatest driver of growth, picking up the slack from online retail growth, which inevitably had to slow at some point. AWS revenues grew 41% to $7.7 billion with operating profit up a huge 59% to $2.2 billion. Online retail sales from North America grew 17% to $35.8 billion, down on last year’s growth rate of 46%.

Forward guidance for the current quarter was provided with net sales forecast to come in at between $59.5 billion and $63.5 billion and operating income between $2.6 billion and $3.6 billion. The sales range fits analyst consensus forecasts for $62.4 billion but operating profits are lower than the $4.2 billion projected by analysts. However, the discrepancy evens out, with expenditures originally expected over Q1 presumably now expected to fall within Q2.

Other than the company’s financials and growth rates, the big news from yesterday’s report was Amazon’s announcement that it plans to achieve 1-day deliveries worldwide for all Amazon Prime members. Currently, Amazon Prime members receive free shipping within 2 days and reducing that to 1 will involve investing $800 million over the second quarter.

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