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Amazon Keeps Pace With Apple As Quarterly Profits Hit New Record

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Amazon’s share price is up around 1.5% today after the online retail, cloud computing and content streaming tech goliath once again blew away earnings forecasts when it reported on its most recent quarter yesterday. With a market capitalisation approaching $920 billion dollars, Amazon has again narrowed the gap in its race with Apple, market cap $954 billion, in the race to become the world’s first trillion-dollar company.

After the shock of Facebook’s 20% and $120 billion share price plunge, the biggest value single day loss in stock market history, Amazon’s positive showing may well have diverted a wider tech sell off. The social media company’s report on Wednesday showed a significant drop-off in user growth and forecast an earnings growth slowdown in the high single digits for upcoming quarters. Those investing online in Amazon, which has had a similarly spectacular bull run over the past few months, will have had cause for concern that anything other than a very strong report yesterday would see share price drop.

In the end, there was nothing to worry about as Amazon posted record revenues of $2.5 billion for the fourth to sixth months of the year. That translated into earnings per share of $5.07, more than double the Wall Street consensus estimate of $2.51. Net income is rising spectacularly quickly for the company, which only hit the $1 billion level over a quarter during the last three months of 2017.

The best performing unit of the company is currently its cloud computing as a service Amazon Web Services. Supported by improving margins in its core online retail unit, that helped the operating margin reach 5.6%, blowing away the 3.2% forecast that analysts had predicted. Guidance for third quarter operating income was also higher than third party estimates of $1.3 billion, with the company itself forecasting a range of between $1.4 and $2.4 billion. Amazon also has a habit of exceeding its own forward guidance or at least coming in at the upper end of the range. Investment in warehouses, data centres and marketing made over the past couple of years were also reported as delivering ‘efficiencies’ exceeding expectations.

The only clouds within the report were that revenue rose by $52.9 billion, growth of 39%, against estimates for $53.4, but still comfortably within Amazon’s own previous guidance range of $51 to $54 billion. International net sales of $14.6 billion were also slightly off consensus estimates.

There is a good chance that either Apple, Amazon or both tech giants will hit the $1 trillion market capitalisation level before the end of 2018, barring a wider market correction hitting home over the coming months. Apple still holds a lead and is edging towards touching distance of that finishing line. However, Amazon’s rapid growth could still give markets the confidence to help propel it past the iPhone maker in a final sprint.

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Paul

The author Paul