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Amazon ( AMZN ) reported its highest sales growth in nearly four years Thursday, while continued robust gains at its cloud-computing unit and merchandise operations also point to a strong current quarter. The e-commerce powerhouse swung to a first-quarter profit of $1.07 a share, which crushed the consensus earnings estimate of 58 cents, and swinging from a loss of 12 cents a share a year earlier. Revenue jumped 28% to $29.1 billion, ahead of the $28 billion view. Amazon sees total Q2 revenue of between $28 billion and $30.5 billion, largely above Wall Street forecasts of $28.3 billion. That would be a 26% gain at the midpoint. Shares jumped more than 12% in late trading, positioning the stock to blast back through its buy point of 603.34 when trading begins Friday. Amazon closed down 0.75% to 602 on Thursday. The earnings beat is likely due to businesses buried within Amazon, such as its cloud computing division, ChannelAdvisor Executive Chairman Scot Wingo told IBD, adding that its third-party marketplace had a significant effect on Q1 profits too. Amazon Web Services (AWS), the company’s cloud-computing division, saw revenue soar 64% to $2.57 billion. AWS was expected to post $2.54 billion in sales, according to FactSet. AWS has been closely watched by investors since the company began reporting its sales separately. “Once again, Amazon Web Services exhibited significant growth, with revenues up $1 billion. However, the more impressive metric is margin, which roughly doubled to 23.5%, generating over $600 million, or roughly 60%, of Amazon’s total operating income,” Moody’s analyst Charlie O’Shea said in an email. Though AWS is a runaway leader in cloud computing, Alphabet ( GOOGL ), through its Google division, and Microsoft ( MSFT ) are mounting fierce competition. In its earnings release last week, Microsoft said its annualized run-rate for the cloud is over $10 billion. Meanwhile, Amazon’s electronics and general merchandise category was also strong, Wingo said. “In North America it grew 32%, and 33% internationally — it’s an acceleration over the holiday period, which is amazing.” Amazon’s Prime Now one-hour delivery service may have accounted for the acceleration, or at least part of it, Wingo said. With its latest expansion into Tampa, Fla., Prime Now covers 42% of the U.S. Amazon has called its expedited shipping options “difficult and expensive” but has said shoppers love them. In previous quarters, shipping costs have weighed on earnings, but Q1 growth in total expenses lagged topline gains: 25% vs. 28%. Free cash flow minus principal repayments increased to $3.5 billion from $1.5 billion in the year-earlier quarter. Free cash flow can be useful to determine whether Amazon sales are growing fast enough to cover the big bets CEO Jeff Bezos makes on things such as data centers, fulfillment centers and new product lines. Working together, the Prime loyalty program, third-party market and Fulfillment By Amazon have created flywheels that further drive profits. “Amazon is taking share from everybody at this point,” Wingo said. E-commerce as a sector is growing at about 15%, while brick-and-mortar retail grow by between 2% and 3%, he estimated. Amazon rival eBay ( EBAY ) posted 5% growth, but only 3% came from the marketplace. Bezos also touted the company’s hardware offerings, such as the Fire TV Stick, Fire Tablets and Echo, but Wingo said that at this point, the sales for the family of Echo products are not significantly boosting electronics and general merchandise sales. “We’re building premium products at non-premium prices, and we’re thrilled so many customers are responding to our approach,” Bezos said in a press release. OK Scalper1 News
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