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.
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
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%.
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.