Amazon.com (NASDAQ: AMZN) is slated to report its second-quarter 2019 results after the market closes on Thursday, July 25.
The e-commerce and cloud computing behemoth is going into this report on a strong note, with investor expectations surely high. Last quarter , it trounced Wall Street's earnings consensus estimate, after doing the same throughout last year.
Shares are up 32.6% so far in 2019 through Wednesday, July 17, versus the S&P 500 's 20.4% return.
Here's what to watch when Amazon report s.
Image source: Getty Images.
Q2 2018 Result
Amazon's Q2 2019 Guidance
Amazon's Projected YOY Change
Wall Street's Q1 2019 Consensus Estimate
Wall Street's Projected YOY Change
$59.5 billion to $63.5 billion
12.5% to 20%
Adjusted earnings per share (EPS)
Data sources: Amazon and Yahoo! Finance. YOY = year over year. Note: Amazon does not provide earnings guidance.
For Q2, Amazon expects operating income of $2.6 billion to $3.6 billion, representing a contraction of 13% to growth of 20% over the year-ago period 's $3.0 billion. While this range is uninspiring, keep in mind that Amazon has been crushing its operating income guidance since last year. While there are no guarantees, it seems more likely than not that the company will exceed its projection.
One main reason that analysts aren't expecting very strong earnings growth is that CFO Brian Olsavsky said on last quarter's earnings call that Amazon planned to spend about $800 million in the second quarter on upgrading Amazon Prime's core two-day free delivery benefit to a one-day free delivery benefit.
For additional context, below are Amazon's year-over-year revenue and earnings growth results for the previous four quarters. The recent deceleration in revenue growth is largely due to the company no longer getting a boost from its Whole Foods acquisition, which closed in the third quarter of 2017. In other words, Amazon lapped the acquisition by a year during Q3 2018.
- Q1 2019: Revenue and adjusted EPS rose 17% and 117%, respectively.
- Q4 2018: Revenue and adjusted EPS jumped 20% and 180%, respectively.
- Q3 2018: Revenue and EPS surged 29% and 1,006%, respectively.
- Q2 2018: Revenue and EPS soared 39% and 1,168%, respectively.
North America's operating income
Amazon's North America business is the largest of its three segments by revenue, accounting for 60% of total revenue last quarter. So, its increasing profitability has been a major reason for the company's powerful bottom-line results since last year. Last quarter, the segment's revenue grew 17% year over year, while its operating income jumped 99% to $2.29 billion, or 52% of total operating income.
Amazon Web Services' overall growth
Beyond the headline numbers, the other major thing to focus on is AWS' overall growth. Amazon's cloud service is very profitable and its profitability has been increasing on a year-over-year basis. So, its revenue growth provides an outsize boost to the company's overall profits.
Last quarter, AWS' revenue grew 41% year over year to $7.70 billion, or 12.9% of total revenue. And its operating income surged 59% to $2.22 billion, or a whopping 50% of total operating income. (The international segment is unprofitable, which explains the combined operating income percentages for North America and AWS adding up to more than 100%.)
In the first quarter, operating cash flow rocketed 89% year over year to $34.4 billion for the trailing 12 months. Free cash flow (FCF) rocketed 215% -- or more than tripled -- to $23.0 billion.
Amazon invests heavily for growth, making operating cash flow the better cash flow metric to gauge the company's business performance.
Q3 2019 guidance
The market is a forward-looking machine, which means that its reaction to Amazon's upcoming report will probably have more to do with the company's guidance for Q3 than with its results for Q2. (Amazon provides an outlook for revenue and operating income but not for earnings.)
So, you should know that for the third quarter, Wall Street is projecting revenue to rise 18.9% year over year to $67.3 billion and adjusted earnings to jump 16.3% to $6.69 per share.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy .