Amazon (AMZN +2%) is trading at a new all-time high after the company reported better than expected first quarter results yesterday afternoon.
The story has been fairly consistent with this disruptive company out of Seattle, Washington, run by Jeff Bezos. Amazon is dominating e-commerce and cloud computing services while investing in both businesses and a host of new ones.
Amazon reported first quarter operating income and sales at the high end of guidance. Revenue grew an impressive 23% to $35.7 billion versus $35.25-37.75 billion guidance. Operating income fell 6% to $1 billion, which was above the $250-900 million guidance.
Of course, profit has never been Amazon's focus and that hasn't changed as the company continues to expand its reach and invest heavily in a myriad of different business. A boon to Amazon's financials, the scale of its cloud computing business Amazon Web Services (AWS) is offsetting ~flat margins in the North American business, where Amazon reinvests profits into new and existing businesses.
The North American segment reported first quarter sales up 23% to $21 billion. Operating margins fell 70 basis points year-over-year to 2.8%. This segment includes Prime Video, where Amazon is the primary competitor to media disruptor Netflix (NFLX). A robust library of streaming video is included with a Prime membership, which provides free two or even one day shipping for most items on Amazon.com. Amazon's original content has earned the company Hollywood's highest honors, such as Emmy's and Academy Awards.
The International segment sales grew 16% to $11 billion and the operating loss expanded to nearly $500 million. Amazon is expanding aggressive in Western Europe and India, among other regions.
The money maker for Amazon has been AWS. The segment reported first quarter sales up 43% with operating income up 47% to $890 million. Operating margins expanded 80 basis points year-on-year to 24.3%. AWS continues to dominate despite increased competition from Google and Microsoft. AWS allows to access technology infrastructure without all the hardware, which has considerably cut the cost of starting a new business.
Amazon also guided second quarter sales in-line with estimates and operating income below consensus. Amazon has rather consistently guided down quarterly operating income only to report profit above its forecast three months later.
Amazon's market cap is just under $450 billion. It ranks fourth in the US behind the other technology behemoths Apple (AAPL), Google (GOOGL) and Microsoft (MSFT).
Amazon's enterprise value is ~22.5x EBITDA estimates and 34x FCF estimates for fiscal 2017.
Keep in mind, Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.
Like most high-growth disruptive companies, a focus on near term financial metrics can prevent participants from some attractive long term investment opportunities.