Can't Hold Down Amazon
The recent Chinese pandemic over the coronavirus is overshadowing a sensational start to tech earnings.
The big have only gotten bigger!
Apple, Microsoft, and now Amazon and Founder Jeff Bezos have clearly tweaked the business into a well-oiled machine.
I won’t lie – expectations were a little shaky going into the earnings’ report because of expense worries on turning the 2-day free shipping for Amazon Prime members into a 1-day affair.
The narrative was whether Amazon could deliver enhancements that could overcome the high cost of making Amazon Prime better.
It’s not cheap to make the logistical improvements in the warehouses and transportation functions.
A lot of money has been poured into air cargo transport efficiency and last-mile developments as well.
Profitability was supposed to bear the brunt of the expense surge, but just take a peek at EPS performance of $6.47 per share vs. expectations of $4.03 per share, and rejoice in relief that expense worries were overblown.
The only conclusion that I can make is that the spoils from investments into logistics have outweighed the costs of the investments.
In total, revenue expanded 21% to $87.44 billion for the quarter which is a robust growth trajectory for a company as gargantuan as Amazon.
Amazon unleashed the head turner metric this time around too sharing that Amazon already has over 150 million Amazon Prime members.
That is almost the equivalent of half of the U.S. population paying Amazon $119 per year.
The higher logistic costs were deemed necessary to stay in front of the rest and expectedly ballooning costs showed up in the earnings report with shipping expenses up 43% year over year to $12.9 billion.
Other segments of the business have been just as prolific as Kansas City Chief’s quarterback Patrick Mahomes.
Streaming and subscriptions pulled in a massive $5.24 billion for the quarter, up 32% from the year-ago period.
Amazon’s cloud business AWS was up 19% to almost $10 billion last quarter.
The 19% represents a significant slowdown from the 35% they grew during the 3rd quarter of last year but still brings in the lion's share of the profits.
Are there any other dark horse growth drivers in Amazon’s arsenal?
Certainly, Amazon’s advertising segment can be pigeonholed as the rising star and generated $4.8 billion in revenue during the quarter, a 41% increase from the year-ago period.
Amazon is also bullish on the Amazon’s “stores,” allowing the company to customize and curate a multipage digital storefront.
Stores are getting a refresh and the company has added features like shoppable images and the ability to schedule updates like new releases or seasonal changes.
Other advertising tools like the ability for brands to create posts, which consumers can view to discover products and brands through a curated feed, will help the company become an advertising juggernaut.
The company launched “Posts” in beta last year which shows that Amazon plans to double down in marketing.
The marketing space serves as a critical area for incremental growth potential and profitability flow-through.
This is because the marketing space is the largest and least penetrated total addressable market, ahead of retail, cloud, and business-to-business segments.
Amazon is a sure-fire buy and hold tech company because it simply is the second-best tech company behind Microsoft.
There will also be opportunities to trade this short-term from the long side, but the volatility might turn off some investors.
