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Faangs Bite Back as Amazon Follows Netflix in Smashing Analysts Estimates

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Amazon’s share price has hit new record highs after the online retail and web services giant posted a set of stellar quarterly results yesterday. The company’s stock was up over 7% in after-hours trading, taking it past its previous record high of $1618 set in early March before the big tech sell off hit in the wake of the Facebook and Cambridge Analytica scandal.

That event proved to be a catalyst for market concerns tighter regulation and the taxman moving in would slow down big tech’s growth prospects. The biggest tech stocks trade at exceptionally high multiples of earnings because of investor confidence in future growth prospects. Fears those might have been over optimistic hit the share price of all the Faangs, the term encompassing Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet. Amazon also found itself in the direct firing line of US President Donald Trump. He has openly criticised and promised action against what he sees as the company using loopholes to systematically minimise the tax it pays in its home territory of the USA by funnelling revenues through subsidiaries in lower tax territories.

The after-market surge took Amazon’s market capitalisation above that of Alphabet and means it is again the second most valuable company in world, second only to Apple. Analyst estimates had put expected group revenue per share to be reported at $1.27. The actual result was for $3.36. While it is not uncommon for results to fall above or below estimates, the extent of yesterday’s disparity is almost unprecedented for such a large company.

Amazon also reported a first quarter leap in revenues by 43%, up to $51 billion. Net income was $1.6 billion, more than double that of the same quarter last year. Forward guidance, if anything, impressed markets even more than the blockbuster results. The company forecast that over the current quarter its operating income could more than triple and net sales rise by 42% to upwards of $50 billion.

The Q1 results were a combination of strong continued growth in the company’s most well-known online retail unit and Amazon Prime media content streaming service. The subscription price for US-based Prime members will see a $20 hike next month to $119 per annum, the first since 2014. Amazon also recently reported the Prime service now has over 100 million subscribers worldwide.

However, it is Amazon’s less high profile Amazon Web Services (AWS) division that is contributing most to revenues and profits. The unit provides scalable cloud computing services and cloud-based hosting for websites. It also recently announced the launch of Blockchain Templates, a new enterprise service that will compete with Oracle and IBM to offer a Blockchain-as-a-Service platform. AWS grew 49% over Q2 and now accounts for 11% of total group sales and 75% of operating income.

With the iPhone losing market share and Amazon quickly catching up on Apple’s $814 billion market capitalisation, its currently worth $732 billion, it may not be long before there’s a new top dog in town, despite Trump’s best efforts.

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Paul

The author Paul