AMZN Stock: Key Takeaway’s From Amazon’s Q1 Earnings

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 6th May 2021 12:51 GMT+1


Last week, Amazon (NASDAQ: AMZN) announced its first quarter of 2021 results and reported net sales of $108.5 billion, a year over year growth of 44%. Its net income was up 224% year over year at $8.1 billion while earnings per share rose by 215% to $15.79.

Comparatively, Wall Street forecast Amazon sales at $104.5 billion while earnings per share was estimated at $9.54. We can see that Amazon surpassed analyst revenue estimates and crushed earnings expectations in the March quarter.

While sales in North America soared 40% to $64.4 billion, Amazon saw its international sales increase by 60% to $30.6 billion. Amazon Web Services revenue was also up by 32% year over year at $13.5 billion.

The COVID-19 pandemic continues to accelerate the shift towards online shopping as the second and third wave of infections have kept people largely indoors.

Amazon large scale of operations has now allowed it to grow bottom-line at a stellar rate as well. The company had forecast operating profit between $ billion and $6.5 billion in Q1 but it reported close to $9 billion in operating income, an increase of 123% year over year. Amazon’s operating cash flow soared 69% year over year to $67.2 billion in the trailing 12-month period while free cash flow was up 9% year over year at $26.4 billion.

 

Why Amazon will continue to grow its sales in 2021 and beyond!

Amazon just spent $45.4 billion on capital expenditures in the last four quarters. This was twice the amount it spent in the 12-month period prior to Q1 of 2020. It continues to invest heavily in multiple businesses that include cloud infrastructure as well as voice-based technologies and new Amazon Fresh supermarkets.

However, according to company CFO Brian Olsavsky Amazon is aggressively investing to expand its logistics business. Amazon in fact has increased its fulfilment capacity by 50% in the last year and opened new centers for its service partners.

Despite being a billion-dollar tech giant, Amazon continues to invest in growth at a far higher pace compared to tech peers. Comparatively, Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG) and Facebook (NASDAQ: FB) have spent $8.7 billion, $18.9 billion, $22.2 billion and $15.2 billion respectively in CapEx in the last 12-month period.

Investors should be excited about the spending by Amazon as the tech behemoth continues to enter into new segments driving long-term revenue growth higher.

 

What next for AMZN stock and investors?

In the second quarter of 2021, Amazon has forecast sales between $110 billion and $116 billion. It indicates the management expects sales to grow between 24% and 30% year over year in Q2. This is higher than analyst revenue estimates of $108.7 billion. While the company does not provide earnings guidance, it expects operating income between $4.5 billion $8 billion in Q2. In the June quarter of 2020, its operating income stood at $5.8 billion.

While e-commerce is the largest business segment for Amazon, it is also the least profitable business. The costs associated with e-commerce is high as Amazon competes with traditional as well as online retailers.

But, over the years Amazon has slowly shifted towards building a third-party marketplace. This vertical was launched back in 1999 and it now accounts for a higher-portion of total revenue compared to first-party sales. Third-party sales also have a higher profit margin as it can take advantage of Amazon’s already huge customer base and logistics network.

Amazon is also the third-largest digital advertising business behind Alphabet and Facebook. In Q1, Amazon’s “Other” business revenue which generally consists of online sales were up 77% at $6.9 billion.

 

The final takeaway

Amazon is firing on all cylinders. It is the largest player in e-commerce, public cloud and digital advertising and continues to expand its suite of services that makes it a top bet for long-term bulls.


Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.