Amazon posts $2.6 billion in earnings, ending their streak of record profits but a healthy gain year over year.
Amazon’s Philosophy
Amazon Inc. (NASDAQ:AMZN) has always been focused on the long term, dating back to Jeff Bezos’ famous letter to shareholders in 1997 the company has made it clear short term profits are not important to the company https://ift.tt/qdfvvl. That has not stopped the company from putting out record quarter after quarter lately; however, in Q2 2019 the company performed slightly below expectations and has ended their record profit streak. Below is a breakdown by segment for comparison to 2018:
Sales
Amazon saw a roughly 20% year over year increase in consolidated sales from $53 billion to $63 billion, and an essentially flat year over profit from Q2 2018 to Q2 2019. Broken down by segment North American sales were $38 vs $32 billion, International was $16 vs $14 billion, and AWS had $8 vs $6 billion year over year.
The biggest difference from Q2 2018 was that AWS contributed more to profits than website sales, $2.6 billion for AWS and $1.5 billion for North America and a loss of $600 million for international. AWS appears to be an investment that continues to pay off for Amazon since it’s inception in 2006. Amazon also noted that changing prime shipping to one day was a big expense for the company but expected it to pay off in the long term.
“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth,” said Jeff Bezos, Amazon founder and CEO. “Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started. A big thank you to the team for continuing to make life easier for customers.”
Earnings Highlights
- Amazon highlighted many different non-financial highlights of their business as well, which are all important towards growth for the company:
- The number of Alexa-compatible smart home devices continues to grow, with more than 60,000 smart home products from over 7,400 unique brands. Additionally, Alexa Guard, a feature that helps customers protect their home by detecting the sounds of smoke alarms, carbon monoxide alarms, and glass breaking, is now widely available across the U.S. Alexa Guard can also be connected to customers’ existing ADT or Ring alarm systems.
- There are now hundreds of third-party devices with Alexa built-in. Customers can access Alexa at home through select TVs from LG and ecobee’s newest smart thermostat, or on-the-go with new headphones from Bose and Jabra. Alexa is now integrated into even more vehicles from Lexus and Toyota, as well as select BMW and MINI vehicles in Germany and the U.K. Additionally, Garmin, iOttie, and Nextbase launched new automotive accessories that make it easy for customers to add Alexa to their current vehicle.
- AmazonFresh expanded to Las Vegas with options for ultrafast one- and two-hour delivery, and introduced an expanded selection of products including tens of thousands of grocery items, plus bestselling items from Amazon.com.
- Amazon continues to expand grocery delivery from Whole Foods Market, and is now available in nearly 90 metros in the U.S., offering Prime customers free delivery in as fast as an hour on thousands of natural and organic groceries and locally-sourced items.
- Amazon published its Small and Medium-Sized Business Impact Report and launched a “Build Your Business with Amazon” website to help entrepreneurs sell in Amazon’s stores. More than 1.9 million small and medium-sized businesses (SMBs), content creators, and developers in the U.S. are currently working with Amazon. SMBs selling in Amazon’s stores have created an estimated 1.6 million jobs worldwide.
- Amazon began hiring for its Arlington headquarters, with plans to hire 25,000 highly-skilled employees over the next decade. Amazon unveiled development plans for the first phase of construction for its new urban campus, which includes the redevelopment of vacant warehouses into two new LEED Gold-certified buildings, new retail space for area businesses, and centrally-located community green space.
- Amazon announced that it will hire nearly 12,000 new employees across Europe in 2019, taking its permanent workforce in Europe to nearly 95,000 by the end of 2019.
- Amazon pledged to upskill 100,000 of its employees across the U.S. by 2025, dedicating over $700 million to provide employees across its corporate offices, tech hubs, fulfillment centers, retail stores, and transportation network with access to training programs that will help them move into more highly-skilled roles within or outside of the company. Programs include Machine Learning University, Amazon Technical Academy, and Career Choice.
Amazon Managing Investor Expectations
When a company does not meet their original estimates they tend to focus on non-financial metrics such the above listed; their press release contained many more which would be loosely related to financial information and as such were omitted. The company also said in their earnings call they expect to see more costs associated with offering one-day delivery, but they claim over time they will fall to impact profits less and be very valuable for the holiday season 2019.
Investors of Amazon have seen the stock soar so far this year up around 30% as of writing, but as this quarter missed earnings and did not set the records it had over the previous four quarters the stock is down 2% in after-hours trading. For future quarters the company will continue to optimize their free cash flow and prioritize lowering delivery times globally over their short term profits. The international expansion helps the company with speed but also compliance and insulates them further from different tariff structures when using third-party sellers, especially as they target larger supply chains.
The post Amazon Q2 Earnings: AWS Continues to Shine as Company Posts 2.6 Billion in Profit Despite Missing Estimates by Nick Walko appeared first on Wccftech.
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