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Amazon (AMZN) Q3 Earnings Beat Estimates, Revenues Up Y/Y

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Amazon.comAMZN reported third-quarter 2018 earnings of $5.75 per share, crushing the Zacks Consensus Estimate by $2.46 (74.8%). The company had reported earnings of 52 cents in the year-ago quarter.

Further, net sales of $56.58 billion missed the Zacks Consensus Estimate of $57.07 billion. However, the figure surged 29.3% year over year and was within management's guided range of $54-$57.5 billion.

North America revenues (60.7% of sales) jumped 34.9% from the year-ago quarter to $34.35 billion. International revenues (27.5% of sales) increased 13.4% to $15.55 billion.

Amazon's drive to expand globally has been a key catalyst in the third quarter. The e-commerce giant made its foray in Turkey's online retail space by launching it own website, Amazon.com.tr during the reported quarter. Further, in order to strengthen footprint in the e-commerce space of India, the company rolled out its website in Hindi - the most widely spoken regional language in the country.

Further, growing physical presence in the United States with rapid expansion of Amazon Go stores contributed well. Further, the company established Amazon 4-star, a new kind of brick and mortar store.

Management has stated that Amazon has hit an annual sales run rate of $10 billion.

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise | Amazon.com, Inc. Quote

Strengthening Amazon Web Services (AWS)

AWS revenues climbed 45.7% year over year to $6.68 billion (11.8% of sales), primarily driven by expanding customer base and strengthening services portfolio.

AWS' customer base continued to expand in the reported quarter. The company added enterprise clients like DoorDash, HubSpot HUBS and Samsung Heavy Industries.

Moreover, Yelp YELP also tied-up with AWS and shifted its master database to AWS.

During the third quarter, AWS announced the general availability of new services like high memory instances, T3 instances, high frequency instance (z1d), memory optimized instances (R5) and memory optimized instances with local storage (R5d) for Amazon Elastic Compute Cloud (Amazon EC2).

Further, the company made its Aurora Serverless and IoT Device Defender available to general public and also unveiled Amazon Lightsail instance with sizes 16 GB and 32 GB.

Additionally, the company teamed up with VMware VMW and introduced Amazon Relational Database Service which enables the customers to build and operate their databases on VMware's datacenters and shift to AWS cloud platform.

Further, AWS introduced VMware Cloud in its the AWS Asia Pacific (Sydney) Region. Moreover, the company is gearing up to expand this facility to its Asia Pacific (Tokyo), EU (Ireland), U.S.West (North California), U.S. East (Ohio) and AWS GovCloud (U.S.) regions in the fourth quarter.

Prime Expansion Continues

During the third quarter, the e-commerce giant significantly expanded its grocery services, which include delivery as well as pick-up services.

The company rolled out its delivery service for natural and organic products such as fresh produce, everyday food items, and quality meat and seafood, purchased at Whole Foods via Prime Now to 48 U.S. cities in the reported quarter. The service is currently available in more than 60 U.S. cities.

Further, Amazon introduced grocery pickup service which enables Prime shoppers at Whole Foods to shop via Prime Now and pick up these groceries within 30 minutes by parking their car at a reserved pickup spot. At present, the service is available in more than 10 cities.

Apart from grocery, the company unveiled Prime Book Box. It is a subscription service aimed at instilling the habit of reading story books among children.

In terms of global expansion, Amazon rolled out monthly Prime membership plan in Canada and Mexico, and monthly Prime Student membership in Germany. Further, it introduced quarterly Prime membership in China.

Along with this, the company launched Prime Reading in India and Prime Credit Card in Germany. All these aided its global footprint during the reported quarter.

In terms of streaming services, Amazon Prime Video original content continued to expand during the reported quarter with Tom Clancy's Jack Ryan, The Romanoffs and season 3 of The Man in the High Castle.

Further, Prime Video aired second season of NFL Thursday Night Football ("TNF") in the third quarter. With this the company witnessed more than 8 million viewers on Prime Video as well as on Twitch.

Additionally, Amazon entered into an agreement with Comcast to launch Prime Video on Comcast's Xfinity X1 set-top box to enable its users to watch Prime content and movies.

New Launches: Fire TV, Echo, Ring

The company unveiled some new Echo devices along with a few companion devices.

The new Echo devices comprising the likes of All-new Echo Dot, Echo Plus, Echo Show and Echo Auto intends to deliver enhanced smart home and car experience to users.

Moreover, the new companion devices such as Echo Wall Clock, Echo Input, Echo Sub, Echo Link and Link Amp will strengthen the performance of Echo smart speakers.

Further, the company introduced two smart home devices namely AmazonBasics Microwave and Amazon Smart Plug, which work on voice commands. While the first device helps in cooking, the second one can control fans, lights and other electrical home appliances.

Apart from these, Amazon continued to expand its Fire product portfolio by introducing Fire HD 8 Kids Edition tablet, Fire TV Recast DVR and Fire TV Stick 4K, a streaming media stick, during the quarter under review.

Additionally, the company unveiled a thinner and waterproof version of Kindle Paperwhite. Further, the company rolled out Stick Up Cam, a home security smart camera, in collaboration with Ring.

Alexa Features Expanding

Amazon has added a number of features to Alexa, which makes it more customer and developer friendly. Further, it has updated the artificial intelligence (AI) skills in Alexa. It is capable of showing more videos with Hulu and NBC, giving cooking instructions and aiding in video calling via Skype.

The e-commerce giant introduced Alexa home safety features like Hunches, Video Doorbell and Alexa Guard to name a few. These are likely to boost Alexa's user base.

Moreover, new entertainment features like TIDAL, Visual Alexa Blueprints, Left-Right Stereo Pairing along with other necessary features that make daily life convenient and hassle-free will continue to aid adoption of Alexa.

Further, Amazon launched Alexa Automotive Core SDK or Auto SDK in order to bolster presence in the car infotainment space. Notably, Auto SDK is the company's first software development kit which will enable the car developers to incorporate Alexa into cars seamlessly.

Additionally, the company witnessed the number of devices compatible with Alexa exceeding 20K across 3,500 brands on a year-to-date basis in the reported quarter.

Quarter Details

Product sales (59.7% of sales) increased 17.3% year over year to $33.75 billion. Service sales (40.3% of sales) surged 52.4% from the year-ago quarter to $22.83 billion.

Operating expenses were $52.85 billion, up 21.8% from the year-ago quarter. Cost of sales, fulfillment, marketing, technology & content, general & administrative and other operating expenses increased 19.7%, 28.9%, 33.2%, 20.5%, 8.4% and 51.2%, respectively.

As percentage of revenues, operating expenses declined 580 basis points (bps) on a year-over-year basis to 93.4%. Cost of sales, fulfillment, technology & content, and general & administrative expenses declined 460 bps, 10 bps, 10 bps, 90 bps and40 bps, respectively. Only marketing expenses increased 10 bps from the year-ago quarter.

Contraction in operating costs kept the overall expense figure down.

Operating income jumped 973.2% from the year-ago quarter to $3.72 billion. Operating margin expanded 580 bps from the year-ago quarter to 6.6%.

Segment wise, North America operating income came in $2.03 billion which surged significantly from $112 millionin the year-ago quarter. AWS operating income were $2.02 million, up 72.6% from $1.17 billion in the previous-year quarter. International segment reported a loss of $385 million, compared with the year-ago quarter loss of $936 million.

Guidance

For fourth-quarter 2018, Amazon expects net sales between $66.5 billion and $72.5 billion. The figure is anticipated to grow in the range of 10-20% on a year-over-year basis. The Zacks Consensus Estimate for net sales is pegged at $73.87 billion.

Management projects an unfavorable impact of approximately 80 bps from foreign exchange rates.

Operating income is expected between $2.1 billion and $3.6 billion compared with $2.1billion in fourth-quarter 2017.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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