Amazon (NASDAQ: AMZN) has just reported its earnings results for the first quarter. While first quarter earnings blew past all estimates, earnings outlook for the second quarter was weak due to focus on one-day delivery for Prime members.
Amazon’s first quarter revenues grew 17% to $59.7 billion. Net income increased from $1.6 billion or $3.27 per share a year ago to $3.6 billion or $7.09 per share. Analysts expected earnings of $4.72 per share on revenue of $59.7 billion. Operating income increased to $4.4 billion, compared with $1.9 billion a year ago.
By segment, net product sales increased 8.5% to $34.7 billion and net service sales increased 30.9% to $25.4 billion.
AWS revenues grew 42.5% over the year to $7.7 billion, in line with analyst estimates. AWS generated operating income of $2.2 billion.
Revenue from subscription services like Prime increased 40% to $4.3 billion. Revenue from online stores grew 10% to $29.5 billion while revenue from physical stores, chiefly from its stores from the Whole Foods acquisition, grew 1% to $4.3 billion. Revenue from third party seller services including commission, fulfillment, and shipping fees grew 20% to $11.1 billion. Other revenue mainly from advertising grew 34% to $2.7 billion.
Amazon’s international sales grew 9% to $16.2 billion. However, losses narrowed 86% from $622 million to $90 million while North America reported net sales of $35.8 billion, up 17% and operating income of $2.3 billion, up 99%.
For the second quarter, Amazon expects sales to grow 13%-20% to between $59.5 and $63.5 billion, compared to analyst estimates of $62.4 billion. Operating income for the quarter is expected to be $2.6-$3.6 billion, below the analyst estimate of $4.2 billion. Part of the lower operating income outlook is due to an $800 million investment in making free one-day delivery shipping the default for Prime members.
Amazon’s Acquisitions and Investments
During the quarter, Amazon acquired San Francisco-based mesh Wi-Fi router maker eero for an estimated $97 million. Founded in 2015, eero had raised $90 million and had an estimated revenue of $5 million annually. eero will be run independently inside Amazon and is expected to help enhance its consumer hardware offerings.
In January, Amazon acquired Vancouver-based TSO Logic for an undisclosed sum. Founded in 2013, TSO Logic uses analytics-driven insights for smarter migrations to the cloud. TSO was bootstrapped and had an estimated annual revenue of $1 million. It is expected to enhance Amazon’s new Outposts product, which enables companies to run AWS workloads on-premise and in the cloud.
During the quarter, Amazon invested heavily in augmenting its delivery fleet to 50 delivery plans and rolling out over 20,000 Mercedes-Benz delivery vans.
Amazon led the $700 million funding round for electric truck company Rivian. Founded in 2009, Rivian has so far raised $1.4 billion from investors including Ford Motor Company, Standard Chartered Bank, and Sumitomo Corporation of America.
Amazon also joined a $530 million round for autonomous vehicle startup Aurora. Founded in 2016, Aurora has so far raised $620 million from investors including Index Ventures, Sequoia Capital, Greylock Partners, and T Rowe Price. It is estimated to have $1.5 million annual revenue.
Amazon’s PaaS Strategy
According to the Q4 Synergy Research Group report, AWS was the leader of the public cloud infrastructure space with about 35% market share followed by Microsoft at 15% share, followed by Google Cloud and IBM Cloud neck to neck at 7%. AWS is known primarily for IaaS, but it has a mix of both IaaS and PaaS offerings. Its PaaS offerings support AI and machine learning, IoT, storage, migration services, security and governance, content delivery, database and analytics. Popular Paas offerings include Elastic Beanstalk, Fargate, and Lambada.
Elastic Beanstalk is an orchestration service for deploying your application. It orchestrates AWS services including EC2, S3, Simple Notification Service (SNS), CloudWatch, autoscaling, and Elastic Load Balancers.
AWS Fargate is a compute engine for Amazon EC2 Container Service (ECS) that allows you to run containers without having to manage servers or clusters. It is popular for building long-running processes such as microservices backends for web and mobile and PaaS platforms. It offers full control of networking, security, and service to service communication and is natively integrated with AWS services for security, networking, access control, developer tooling, monitoring, and logging.
Lambda is a computing service that runs code in response to events and automatically manages the computing resources required by that code. It is popular for data-driven applications that need to respond in real-time to changes in data, shifts in system state, or actions by users.
During the quarter, AWS announced Open Distro for Elasticsearch, a 100% open source distribution of the Elasticsearch analytics engine that includes features like security, alerting, cluster diagnostics, and SQL support. All features of Open Distro for Elasticsearch are licensed under Apache 2.0 enabling developers to use it without any commercial use restrictions and providing customers a fully-featured, completely open source distribution that makes it easy for everyone to use, collaborate, and contribute.
What companies do you think Amazon should acquire to enhance its PaaS offerings?
Amazon’s stock touched a record high of $2050.50 in September and crossed $1 trillion in market cap but its stock is currently trading at $1950.6 with a market cap of $959.8 billion. Its 52-week low is $1307.