Here are highlighted key data points, insights from a few key analyst and press reactions to Amazon Q1 results.
– 12 month operating cash increased 26%
– Trailing 12 month Free Cash Flow increased to $1.49B
– Trailing 12 month capital expenditures were $3.85B
– Revenue increased 23% to $19.74B excluding FFX
– Active Customer Accounts exceeded 224 million
– Active seller accounts are more than 2 million
– Seller units represented 40% of units sold
– North America growth at 26% to $11.86B (or ~60% of Amazon Enterprise)
– NA Media grew 12%; EGM (electronics, general merchandise) grew 28%; other revenue grew 60%, to $1.2B
– NA operating income increased 23%, to $562M; a 4.7% operating margin
– International growth grew 18% to $7.88B (or 40% of Amazon Enterprise)
– Int’l Media grew 4%; EGM grew 27%;
– Int’l segment operating loss of $60M, compared to $16M in prior period
– Inventory turns at 9.1, down from 9.5
– There have been 42 AWS price decreases
Key Journalist Updates:
Paulo Santos at Seeking Alpha
What is the main consequence of Amazon.com’s Q1 2014 earnings report and guidance? It’s another ritual slashing of the earnings estimates, of course. Q2 2014 was expected at $0.24 per share before the earnings report. Now it’s down to a loss of $0.05 and consensus ought to go lower still, to around a loss of $0.25 or so.
Not only did Q2 2014 get slashed, but the whole of 2014 also got slashed as a result. From the $2.65 per share expected 90 days ago, the consensus is now down to $1.32 and might head lower still. This is a halving of the earnings consensus for 2014 in just 90 days. And it puts Amazon.com’s 2014 price/earnings ratio at 230 times, even after Friday’s drop!
New York Times
Although Amazon reported revenue of nearly $20 billion, it said its operating income fell 19 percent, to $146 million. Net income was a modest $108 million. Perhaps more unnerving was the company’s forecast for next quarter: flat revenue and a loss that might be as big as $455 million.
Shares plunged, dropping nearly 10 percent, or more than $30, to just over $300 at Friday’s close. They hit a record high of $408 earlier this year.
Wall Street Journal
Amazon’s gross-profit margin, or the share of revenue remaining after paying for goods and related costs, came in at 28.8%, up more than two percentage points from a year ago. Mark Mahaney, an analyst at RBC Capital Markets, was looking for a gross margin of 28.6%.
“The revenue beat is positive given concerns investors had following slower unit growth during the holiday period,” said Colin Sebastian, an analyst at RW Baird.
Wall Street Journal
Capital expenditures in 2012 and 2013 were double the aggregate for the prior two years as Amazon invested in new warehouses. The shorter distance between Amazon’s goods and its customers should be starting to improve productivity. While fulfillment costs were still 11.3% of revenue in the first quarter, compared with 10.8% in the prior-year period, Amazon lost less on shipping.
Amazon is still building fulfillment centers. It is also investing in its cloud-computing business, Amazon Web Services. For investors, these are relatively known quantities.
But Amazon isn’t stopping there. It is investing in China to try to capture a piece of that country’s booming e-commerce market. The retailer also spent more than $1 billion last year on video content. That is expected to ramp up due to the launch of its new Fire TV set-top box. To sell that box and help justify a $20 increase in annual Prime subscription fees, Amazon is also making its own videogames and premium TV shows.
Key Stock Analyst Insights
Amazon’s growth potential is undeniable. Key top-line metrics, including active users (which have grown at a 22% CAGR the past five years), total physical and digital units sold (38% CAGR), and third-party units sold (48% CAGR) continue to outpace global e-commerce trends, suggesting that Amazon is gaining market share and fortifying its network effect. Nevertheless, based on operating margins of 1.0% in 2013 (2.7% excluding stock-based compensation and amortization of intangibles), our fair value estimate seemingly requires a leap of faith based on whether the company will be able to monetize its explosive growth.
MacAdams, Wright, Ragen
Amazon’s Q1 results were mixed relative to expectations. Revenues increased 23% y-y to $19.7 billion and slightly beat our estimate ($19.7 billion) and the Street view ($19.4 billion), and were toward the high end of management’s outlook ($18.2–$19.9 billion). Operating income of $146 million (vs. $181 million a year ago) was below our estimate of $157 million and well short of the Street’s $205 million.
• As a percentage of sales, G&A expense has stabilized, while fulfillment has shown signs of moderating. However, first quarter technology and content expenditures accelerated to $1.99 billion (or 10.1% of sales) from $1.38 billion (or 8.6% of sales) a year ago, supporting Amazon Web Services growth. Secondarily, investments in China have also accelerated—although the dollar amount hasn’t been specified—and contributed to a ($60 million) loss in Amazon’s international segment. Based on management’s comments, we expect these investments to continue and possibly accelerate.
In our view, the first wave of HBO content on Prime Instant Video is unparalleled for a subscription-only online streaming service from a quality perspective. According to Brad Beale, Director of Content Acquisition for Amazon, the shows available in May have over 115 Emmys combined. We believe the HBO deal positions Prime Instant Video as a viable competitor and potentially more appealing alternative to Netflix. Through the HBO deal, in addition to its own original content, Amazon has the potential to offer close to seventy different series that we believe HBO owns outright, with multiple seasons available for the more successful shows. In comparison, we believe that Netflix’s original series figure is closer to ten, with up to only two seasons available. Also, Netflix typically buys first window streaming rights only, as opposed to owning the content.
Wells Fargo Equity Research
Summary: Each year, Amazon’s annual letter to shareholders has a particular theme that often unveils Amazon’s top areas of focus. For FY2013, the theme is clearly ”innovation” as Amazon highlights 21 key initiatives and provides some rare details and hints about the future. Below we highlight our top 5 takes for retail investors.
1. Amazon is looking outside the box to provide faster delivery. The company plans to roll out Sunday delivery through the USPS to a ”large portion of the U.S. population throughout 2014,” after recently rolling this out to select cities. Amazon has also created its own fast, last-mile delivery networks in the UK, where commercial carriers couldn’t support peak volumes.
2. Fulfillment innovations continue at a rapid pace. Amazon confirms it now has 96 fulfillment centers worldwide and is on its 7th generation of FC design. In FY2013 the company rolled out 280 major software improvements across the FC network.
3. Fashion and Grocery are big category focuses. ”Amazon Fashion is booming” with a focus on premium brands and designers, as Amazon expands it selection, offers free returns, and improves photos and videos on its site. In grocery, Amazon also says it will ”continue its methodical approach measuring and refining Amazon Fresh with the goal of bringing this incredible service to more cities over time.”
4. Expect Amazon Prime to continue to get bigger and better. Amazon Prime members are ordering more items, across more categories ”than ever before,” and more benefits to Amazon Prime are coming. ”We’re not done,” says Amazon. ”We have many ideas for how to make Prime even better.”
5. Delivery drones are not a laughing matter: Amazon noted it is ”flight testing” 5th and 6th generation Prime Air drones, and is in the design phase on generations 7 and 8.