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Amazon Marching Towards Trillion Dollar Market Cap

Posted on Monday, Jul 30th 2018

Amazon (NASDAQ: AMZN) reported a mixed second quarter last week. While it missed estimates of revenue, earnings estimates blew past estimates. This was the third straight quarter of profit above $1 billion.

 Amazon’s Financials

Amazon’s second quarter revenues grew 39% to $52.9 billion, missing the market’s expectations of $53.41 billion. Net income increased a whopping twelve times to $2.5 billion or $5.07 per share from $197 million or $.40 per share a year ago, blowing past analyst expectations of $2.50.

Operating income increased to $3 billion, compared with $628 million a year ago. The company ended the quarter with cash balance of $17.6 billion. Its workforce increased 51% y-o-y and 2% q-o-q to a record-high 575,700 employees.

By segment, net product sales increased 29% to $31.8 billion and net service sales increased 59% to $21 billion.

AWS revenues grew 49% over the year to $6.1 billion or about 11.5% of total revenue and beat estimates of $6 billion. AWS generated operating income of $1.64 billion or 55% of the total operating income of the company.

Revenue from subscription services like Prime increased 57% to $3.4 billion. Revenue from online stores grew 14% to $27.2 billion while revenue from physical stores, chiefly from its stores from the Whole Foods acquisition, was $4.3 billion. Revenue from third party seller services including commission, fulfillment, and shipping fees grew 39% to $9.7 billion.

Other revenue mainly from advertising grew 132% to $2.2 billion. Its North America revenue grew 44% to $32.1 billion, while international sales grew 27% to $14.6 billion.

For the third quarter, Amazon expects sales to grow 23%-31% to $54-$57.5 billion versus analyst estimate of $55.6-$62.2 billion. Operating income for the quarter is expected to be $1.4-$2.4 billion versus analyst estimates of $1.5 billion.

Amazon’s New Offerings

A prime focus for Amazon has been Prime video and Fire TV. During the quarter, Amazon and Best Buy released the first of the next generation Fire TV Edition smart TVs to customers in the U.S. Amazon also announced the Fire TV Cube, a 4K Ultra HD streaming media player with Alexa that allows customers to control the TV with their voice.

eMarketer expects Amazon Fire TV to have 48.6 million users, up 21% and nearly 27% share of connected TV users in the US. Amazon Prime video viewership is expected to increase 12% to 88.7 million in the US this year.

AWS announced the general availability of Amazon Elastic Container Service for Kubernetes, which is a fully managed service to deploy, manage, and scale containerized applications. It also announced the GA of DeepLens, a deep learning-enabled wireless video camera built to give developers hands-on experience with machine learning and Amazon Neptune, a fully-managed graph database service to store and navigate highly-connected data. According to KeyBanc analysts, AWS lost market share to Azure in the fourth quarter. From 68%, AWS share slipped to 62%, while Azure’s share increased from 16% to 20% and Google’s share increased from 10% to 12%. With these innovations, it hopes to stem the decline.

Amazon’s Acquisitions and Ventures

Amazon has announced a new offering that helps entrepreneurs build their own companies by delivering Amazon packages. Business owners can access Amazon’s delivery technology and package volume as well as receive discounts on a suite of assets and services such as vehicle leases and comprehensive insurance. It has also committed $1 million to fund startup costs for eligible military veterans to start their own delivery businesses.

It also has a $100 million Alexa Fund through which it has invested in companies including wellness software app Aaptiv, AI training platform DefinedCrowd, interactive storytelling app Novel Effect, entreprise CRM intelligence startup, and gaming company Sensible Object that comines custom hardware and digital apps for games.

Last month, Amazon announced its plans to acquire online pharmacy PillPack for an estimated $1 billion. PillPack helps consumers manage medications by sorting them into doses and refilling them. Launched in 2013, it is licensed to ship prescriptions in 49 states. It was expected to cross $100 million in revenue in 2017. It has raised $118 million in funding from Accel Partners, Atlas Venture, and CRV. Would Amazon disrupt healthcare next?

Its stock is trading at $1817.27 with a market capitalization of $931.75 billion. It touched a record high of $1863.8 following the results. It hit a 52-week low of $931.75 in September last year.

Photo Credit: simone.brunozzi/

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