Insights

Amazon.com Earnings Analysis

Amazon.com (NASDAQ: AMZN) announced its earnings for the fourth quarter of calendar 2018.

Highlights:


  • Annual sales grew by 30.9% to $232.9 billion compared to $177.9 billion in 2017 and operating income increased to $12.4 billion (operating margin ratio: 5.3%)

  • 4Q18 quarterly sales increased by 19.7% to $72.4 billion year-over-year, where sales from services contributed 44.7%.

  • Free cash flow increased to $17.3 billion in 2018 compared with $6.4 billion in 2017.

Annual results

The company made $232.9 billion in sales, which was more than double the size of 2015. Operating income increased to a staggering $12.4 billion in 2018 from $4.1 billion in 2017. The operating margin ratio increased to 5.3%.

Amazon have strategically pursued growth through a variety of product and service developments. This development has been significant for their overall performance as their sales grew by 30.9% from the previous year. They have grown at high levels consistently for 4 years in a row.

Amazon Web Services (AWS) sales were at $256 million which increased to 11% of total sales. Operating income from AWS reached $7.3 million, which is more than half of the total operating income.

Quarterly results

As the fourth quarter includes the holiday season, sales soar annually through massive shopping days such as Black Friday and Christmas. In 4Q18, sales increased by 19.7% to $72.4 billion compared with $60.5 billion in the previous year.

In 4Q18, the company reported $44.7 billion in product sales. Product sales are the company’s core, but seasonal factors also affect it. On the other hand, service sales business is relatively stable compared to product sales, and it has been a major factor for the company’s growth as of recently.

Amazon service-based sales have maintained a growth rate of above 40% each quarter and do not have a dependency on seasonal factors.

This segment includes third-party seller services such as fees and commissions associated with market place or Prime membership.

Third-party sales were at around $13.4 billion in 4Q18. Small and medium-sized businesses had their best holiday season ever in Amazon’s stores in this quarter. More than 50% of products sold in Amazon’s stores this holiday season came from small and medium-sized businesses. However the growth of third-party and prime members is slowing down compared to the growth of AWS or others.

AWS kept its high growth rate at 45.3% and others doubled the sales growth in 2018 compared to 2017. Subscription services growth is slowing down to 24.6%.

Amazon Advertising

Other services primarily include sales of advertising services, as well as sales related to the company’s other service offerings.

Looking into product sales, online store sales increased by 12.6% YOY to $39.8 billion in 4Q18. Echo Dot, a voice-controlled smart speaker with Alexa(AI), was one of the best-selling products during the holiday season.

Looking into the cost structure, fulfillment cost stays at around 15%. The company aggressively spent on R&D with $28.8 billion and
retained top spot as world’s largest corporate spender on R&D.

Balance Sheet

Cash and cash equivalents increased by more than $10billion YOY. Free cash flow increased to $17.3 billion in 2018 from $6.4 billion in 2017. Capital to asset ratio was 26.7%.

Amazon.com Market Summary

The company’s market cap is valued at $805.7 billion as of February 6 2019, which competing against Microsoft and Apple to be the world’s highest valued company. The company’s EV is $813.7 billion and EV/Free cash flow is 47.

First Quarter 2019 Guidance

Sales are expected to be between $56 billion and $60 billion, or to grow between 10% and 18% compared with 1Q18. Operating income is expected to be between $2.3 billion and $3.3 billion, compared with $1.9 billion in 1Q18.

The company has diversified its service business and grown revenue successfully. Alexa, which the company strongly focuses on the development, is getting smarter and quickly spreading across the world. The company is becoming an inseparable part of people’s daily life.

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The original article was published by Stockclip, Inc. on 01/02/2019.

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