Amazon Is Firing On All Cylinders

Amazon Revenue Trend Forecast

Amazon delivered a stunning beat reporting earnings yesterday, posting EPS of $0.28 on revenue of $13.18 billion. The reason? Basically, everything did well. Some key takeaways:

  • Choice quote from the earnings “our results are inherently unpredictable”; Amazon responds to global demand for e-commerce, which is tied in to too many factors to predict.
  • Amazon is clearly a general-purpose retailer: electronics and other general merchandise sales (EGM) were up 43% y/y, whereas media sales (books, CDs, etc.) were up “only” 19% y/y. This is due in part to the secular shift away from physical media (where Amazon is poised to gain thanks to its Kindle ecosystem) and in part to the broadening of Amazon’s product mix, which was always on the cards even in 1995. The point is: if there was any doubt left, Amazon is now the Walmart of the internet.
  • Despite increased spending, margins increased as well. As JP Morgan’s Doug Anmuth writes in a note this morning, “Amazon’s 1Q CSOI margin of 3% marks the second consecutive quarter of margin expansion and although margins remain at historical lows, we think the bulls could view this as a steady upward trend.” This is despite the fact that Amazon is spending on Kindle, which costs money in the short term, as well as warehouses and fulfillment centres, and data centres for Amazon Web Services. Part of this is due to Amazon’s stronger-than-expected growth, but part of this just highlights what a well-disciplined, well-oiled cost-cutting machine Amazon is. 
  • Even though Amazon is very tight-lipped about them, by all accounts AWS and Kindle are still doing very well. In other words, Amazon is doing well because all of its businesses are doing well: general sales, physical media sales, digital media sales and cloud computing.

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