Amazon Delivers on Every Count

Amazon (NASDAQ: AMZN) acquired 460-store Whole Foods Grocery chain for $13.6 billion last quarter and is now expanding its physical presence across the country. It is also expanding its international reach and its video and music offerings. But first, let us look at its strong third quarter earnings, which surpassed all expectations. 

Amazon’s Financials

Amazon’s third quarter revenues grew 34% over the year to $43.7 billion, ahead of the market’s expectations of $42.2 billion. Net income increased slightly to $256 million or $0.52 per share crushing analyst estimates of $0.04 per share.

Its operating margins continued to fall from 1.8% a year ago to 0.8% in the quarter. Cost of sales grew 30% to $27.5 billion, fulfillment expenses grew 49% to $6.4 billion, marketing expenses grew 42% to $2.48 billion, and technology and content spend grew 46% to $5.9 billion.

By segment, net product sales increased 29% to $28.77 billion and net service sales increased 44% to $15 billion.

AWS continues to drive its profitability and generated operating income of $1.17 billion in the quarter. AWS revenues grew 42% over the year to $4.58 billion or about 10% of total revenue and beat estimates of $4.5 billion. AWS owned 30% of the cloud infrastructure market in the second quarter, more than double Microsoft Azure’s market share of 14%.

Revenue from subscription services like Prime increased 59% to $2.4 billion. Revenue from online stores grew 22% to $26.4 billion while revenue from physical stores, chiefly from its stores from the Whole Foods acquisition, was $1.28 billion. Revenue from third party seller services including commission, fulfillment, and shipping fees grew 40% to $7.93 billion.

For the fourth quarter, Amazon expects sales to grow 28%-38% to $56-$60.5 billion. Operating income for the quarter, including shopping holiday Black Friday and winter holidays, is expected to be $300 million-$1.65 billion. Analysts estimate operating income of $1.55 billion on sales of $58.8 billion.

Amazon’s New Offerings

Amazon recently introduced five new Alexa-enabled devices.It also announced during the quarter that Alexa and Echo are coming to India and Japan, with an all-new Alexa experience designed from the ground up for Indian and Japanese customers.

Amazon and Microsoft are collaborating on ensuring that Alexa and Cortana are inter-operable. AWS and Microsoft also announced Gluon, a new open source deep learning library that allows developers of all skill levels to prototype, build, train, and deploy sophisticated machine learning models for the cloud, devices at the edge, and mobile apps.

AWS launched Amazon Macie, a new security service that uses machine learning to help customers prevent data loss by automatically discovering, classifying, and protecting sensitive data in AWS. Customers include Autodesk, Edmunds, and Netflix.

AWS announced that it will open a new infrastructure region in the Middle East in 2019. Currently, AWS provides 44 Availability Zones across 16 infrastructure regions worldwide, with another 14 Availability Zones across five AWS Regions in China, France, Hong Kong, Sweden, and a second GovCloud Region in the US expected to come online by the end of 2018.

Amazon Business launched Business Prime Shipping, offering unlimited free two-day shipping for multi-user business customers in the US and Germany. Amazon Business also expanded to Japan and India in the quarter.

Amazon expects to create more than 120,000 seasonal jobs in its US network of fulfillment centers, sortation centers, and customer service sites. Last year, Amazon transitioned thousands of holiday positions to regular, full-time roles after the holidays, and plans to continue that trend this year. It ended the quarter with 541,900 employees.

Amazon’s Music and Video Offerings

To compete with Netflix’s original content strategy, Amazon Studios closed deals with The Walking Dead creator Robert Kirkman and Gilmore Girls creators Amy Sherman-Palladino and Daniel Palladinon. It also announced development on Underground Railroad with Barry Jenkins; The Boys with Seth Rogen and Evan Goldberg; Snow Crash based on the novel by Neal Stephenson; Lazarus based on a comic book by Greg Rucka; and Ringworld based on Larry Niven’s sci-fi book series.

While Netflix is focusing on entertainment for kids, Amazon is looking at luring teens to shop or stream content on the Amazon App. Teens can now use their own login while parents can choose to approve all orders or set pre-approved spending limits per purchase.

Amazon is now also entering the music world. It launched Amazon Music Unlimited for customers in France, Italy, and Spain, offering a full catalog streaming service with more than 50 million songs for just €9.99 per month, with Prime members receiving exclusive pricing on individual and family plans. It also introduced multi-room music, a new Alexa feature that lets users control and synchronize music across multiple Echo devices. Its Amazon Music app now features Alexa on iOS and Android in the US, UK, Germany, and Austria. Spotify look out!

Its stock is trading at $1100.95 with a market capitalization of $529 billion. It touched a record high of $1105.85 following the results. It hit a 52-week low of $710.10 in November last year.

Photo Credit: simone.brunozzi/Flickr.com