Amazon.com Inc. (NASDAQ: AMZN) overcame sluggish online sales last quarter to post its best-ever profit, as the company leaned heavily on its cloud services and fast-growing advertising business. The stock gained tepidly in after-hours trading, a possible sign that traders are concerned with the company’s slowing revenue growth.

 

Q1 2019 EARNINGS SUMMARY

  • Earnings: $7.09 per share
  • Revenue: $59.7 billion
  • AWS Revenue: $7.7 billion

 

Earnings Surge, Revenue Growth Slows

Amazon posted record-setting profit during the first quarter, earning $3.56 billion. That’s equivalent to $7.09 per share, which was above and beyond the $4.72 analysts had expected. Operating profit reached $4.4 billion, which represented a margin of 7.4%. That’s nearly double last year’s rate.

Underscoring the record surge in profit was another stellar quarter for Amazon Web Services (AWS), the company’s flagship cloud computing platform. AWS sales surged 41% to $7.7 billion, matching estimates, while operating income climbed 59% to $2.22 billion.

As of 2018, Amazon Web Services was the second largest cloud vendor in terms of annual revenue. Only Microsoft’s commercial cloud services had a bigger haul. Still, Amazon’s cloud-based revenue is double that of IBM and more than three times larger than Oracle’s. Google Cloud and Alibaba are a distant fifth and sixth, respectively.

Amazon’s overall sales grew just 16.9% to $59.7 billion in the first quarter, the weakest expansion in almost four years. Growth in North American sales slowed to just 17% from 46% last year.

 

Guidance Lowered

Despite seeing wider margins from growing segments like cloud, advertising and third-party sellers, Amazon announced Thursday that its profits are expected to decline in the second quarter.

The latest guidance sees operating profits reaching $2.6 billion to $3.6 billion in Q2, well below the $4.2 billion analysts expected. CFO Brian Olsavsky said the lower guidance is due to its $800 million investment in one-day delivery shipping to Amazon Prime members.

 

Stock Approaching Record Levels Again

Amazon is the third largest company by market cap after Microsoft and Apple.

After flatlining on Wednesday, Amazon shares rose just 0.6% after hours to reach $1,913.88. At current levels, the company has a total market capitalization of $936 billion, where it was third to Microsoft and Apple.

Amazon is one of the year’s best big-tech stocks but its share price remains below peak levels. During the depths of the market-wide selloff in the fourth quarter, AMZN was off more than 36% from its record high. The stock peaked north of $2,000 in September.

Since bottoming in December, AMZN has recovered more than 45%.

Conclusion

So far, wider margins and lower revenue growth don’t seem to be a big problem for investors. However, a loss of momentum in online retail — Amazon’s core business — could be a source of concern moving forward. The online marketplace now relies more heavily on third-party sellers, which account for 58% of the total sales. This means Amazon is selling less goods directly and relying on vendors to generate most of its retail revenue.

Disclaimer: Author holds no investment position in Amazon stock.