Amazon on the rise

Amazon on the rise
Amazon has continued its impressive growth and company’s sales have continued to accelerate. According to earnings reported by the tech giant, its profits have more..

Amazon has continued its impressive growth and company’s sales have continued to accelerate. According to earnings reported by the tech giant, its profits have more than doubled in the first quarter.

Amazon reported net income of $1.6 billion up from $724 million from a year ago.

Background

Amazon is an American electronic commerce and cloud computing company that was founded on July 5th 1994. It started as an online bookstore and later diversified to sell various commodities like electrical appliances and apparel. Today, it also produces consumer electronics like the Kindle e-Readers, tablets and more. It’s market value had exceeded to $500 billion by July 2017.

Amazon posted earnings for the second quarter of 2017 that fell dramatically short of investor expectations, even as the ecommerce giant boosted revenue 25%. Net sales roles to $38.0 billion in the second quarter. The tech giant reported $43.7 billion in earnings in 2017. This beat market expectations considerably as investors projected earnings of $42.1 billion. The Amazon sales leaped by 34 percent over the previous quarter.

Despite Amazon's sales growth, the firm's profits were nearly flat in 2017. This is because as it ploughed money into tech gadgets, streaming video, data centres and warehouses to support its growing empire. The firm said profits in the three months to the end of September were $256m, up from $252m in 2016. Chief executive Jeff Bezos said the Amazon sales increase was in part down to the growing demand for the firm's smart home products. He said, “In the last month alone, we've launched five new Alexa-enabled devices, introduced Alexa in India, announced integration with BMW, surpassed 25,000 skills, integrated Alexa with Sonos speakers, taught Alexa to distinguish between two voices, and more.”

Jeffrey Preston Bezos is the founder, chairman, and chief executive officer of Amazon.com. He is now the richest person in history. On January 8th 2018, Bezos net worth reached $105.1 billion. He has replaced the old record, which was held by entrepreneur Bill Gates whose net worth had surpassed $100 billion in 1999.

Analysis

In February 2018, Alphabet Inc revealed that it had missed its quarterly profit forecasts. This was because despite steady ad sales growth, the company increased its spending to promote its consumer gadgets, YouTube video app and cloud computing services.  On March 2018, for the first time ever, Amazon surpassed Google to become the second most valuable listed company in the world. The market capitalization for Amazon rose to $768 billion after shares finished up 2.69 percent at $1,586.51.

Amazon reported net income of $1.6 billion up from $724 million from a year ago in its first quarter of 2018. The earnings that have been reported have considerably beaten industry projections and as a result, share prices of the company also significantly rose. Analysts on average projected Amazon to report earnings of $1.24 a share on sales of $49.9 billion. Revenue jumped 43% from last year, to $51 billion from $35.7 billion.

Amazon’s impressive numbers:

  • Revenue: $51.04 billion vs. $49.78 billion, as estimated, according to Thomson Reuters
  • EPS: $3.27 per share vs $1.26 per share, as estimated, according to Thomson Reuters
  • AWS revenue: $5.44 billion vs. $5.25 billion, as estimated, according to FactSet

Amazon’s revenue was boosted in part due to the impressive performance of its cloud service (AWS). The revenue of AWS was climbing to 49 percent in the first quarter. “AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” Bezos said in Thursday’s announcement, later adding: “That’s why you’re seeing this remarkable acceleration in AWS growth, now for two quarters in a row.”

Amazon profit increased 221% year-over-year and the 43% gain in revenue puts the company on track for another increase in revenue growth this year. Amazon’s advertising wing also had an incredibly impressive year. It grew by 139 percent increase from last year, generating $2.03 billion in sales. The company’s subscription wing (this includes Amazon Prime) grew by over 60%. Amazon Prime now has more than 100 million users worldwide.

"At first glance, we are quite frankly flabbergasted by Amazon's 1Q 2018 results," Anthony Chukumba of Loop Capital wrote in a note after the earnings.

Assessment

Our assessment is that given Amazon’s impressive rise, it is likely that the company’s worth could cross a trillion dollars by the end of 2018. As a time where investor’s confidence in tech companies like Google and Facebook is decreasing (due to data mining criticism), Amazon continues to go from strength to strength. This is largely because the company continues to invest in computing, groceries and other new businesses, thus bolstering investor’s confidence. Under the stewardship of Jeff Bezos, the company has broken new ground by disrupting traditional industries and completely subverting them. Will this trend continue?

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