Amazon (AMZN 1,833.01, +25.01, +1.38%) is up 4% at new all-time highs premarket after showing that 24 years of investments are finally starting to pay off and fall to the bottom line.
The company reported record operating income. Second quarter profits came in well above guidance, up 375% at $3.0 bln vs. the company's $1.1-1.9 bln forecast as revenue grew 39% to $52.9 bln vs. $51-54 bln guidance.
Breaking down Amazon's businesses further:
- Online sales grew 12% to $27.2 bln
- Third Party sales grew 36% to $9.7 bln
- Subscription services sales grew 55% to $3.4 bln
- Amazon Web Services (AWS) sales grew 49% to $6.11 bln; operating income grew 79% to $1.6 bln
- Advertising revenue grew 132% to $2.2 bln
Amazon does not break out profits beyond North America, International, and AWS, so we don't know how profitable these segments are outside of AWS, but scaling the high-margin subscription and advertising services appear to be boosting profits quite nicely.
While third quarter revenue guidance came in just below expectations (up 23-31% vs. +33% estimates), investors are pleased to see the better than expected operating income outlook of $1.4-2.4 bln.
Amazon had traditionally guided down operating income, but this marks the second quarter in a row where the profit outlook actually exceeds Wall Street estimates, a trend investors are obviously happy to see.
We expect the company will continue to voraciously invest in growth for the long term.
The combination of its dominant e-commerce business and logistics network, the leading (and very profitable) cloud computing business where growth is accelerating, Whole Foods, technology gadgets, and now a burgeoning advertising business means the Amazon flywheel is spinning like we haven't seen before. The company's outlook remains very strong for the long term.
Amazon's market cap is approaching $900 bln as the stock is up 60% year-to-date.