ii view: Sales boom at Amazon, but so do costs
By Keith Bowman from interactive investor.
Rising costs and disappointing profits overshadow further sales growth at the online retailer.
Second-quarter results to 30 June 2019
- Net sales up 20 per cent to $63.4
- Operating income up 3.3 per cent to $3.1 billion
- Diluted earnings per share up 3 per cent to $5.22
Chief executive Jeff Bezos said:
“Customers are responding to Prime’s move to one-day delivery — we’ve received a lot of positive feedback and seen accelerating sales growth. Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started.”
ii round-up:
Amazon.com Inc (NASDAQ:AMZN) went public on 15 May 1997. Today, it employs more than 560,000 people and jostles with Apple (NASDAQ:AAPL)and Microsoft (NASDAQ:MSFT) as the largest listed US company.
The company has three strings to its bow: North American retail, International retail and Amazon Web Services (AWS), which provides computer server data cloud services to corporate customers. Gogo and Lyft (NASDAQ:LYFT) and the National Association for Stock Car Auto Racing (NASCAR) are among recent new deals.
There is mixed progress in these second-quarter results. A 20 per cent increase in sales year-over-year to $63.4 billion beat analyst forecasts, and Amazon is guiding for between $66 billion and $70 billion of sales in the third quarter, equivalent to between 17 per cent and 24 per cent growth on the year before.
Free cash flow increased to $25 billion compared to $10.4 billion in 2018.
But operating costs rose by 21 per cent, pushed higher by a focus on one-day delivery to customers. A 37 per cent increase in net sales for the high-growth AWS business was also less than some analyst expectations.
It’s why profit of $5.22 per share pulled up short of the $5.57 expected, and the share price retreated by over 2 per cent in after-hours US stock market trading.
ii view:
Amazon offers investors the chance to buy into a retail revolution. Often blamed for the demise of physical shopping outlets, the convenience that Amazon has brought to the shopping arena is evidenced by phenomenal growth.
For investors, a stock market value of around $1 trillion might suggest that the best of its growth is now behind it. But a forward price/earnings (PE) ratio of over 70 implies that investors and analysts anticipate much more growth to come. Like Microsoft and Google parent Alphabet (NASDAQ:GOOGL), Amazon now competes to offer global corporations data server facilities. Any slip-up in growth will be punished, of course, and, as with the other mighty US tech stocks, the debate about valuation is never far away from Amazon. But it is the market-leader and streets ahead of the rest; it’s why investors keep buying. The real test, however, will be how it copes with the next major economic slowdown.
Positives
- Dominant position in online retailing
- Amazon Web Services is now a major global player
- Voice recognition Alexa product dominates rivals Apple and Google
Negatives
- Threat of increased regulation across many of its markets
- Management succession risk – who might replace current CEO and founder Jeff Bezos
- Costs eat into profits
The average rating of stock market analysts:
Buy
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