Amazon’s Details from Blockbuster Earnings Report

February 1, 2019
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In one of the biggest stories of the earnings season, Amazon (NASDAQ: AMZN) has announced that it raised $72.4 billion in the holiday quarter, exceeding the Wall Street estimate of $71.9 billion. This is a record high for Amazon, and it shows that the company still has room for growth in an economy where consumer confidence is high.

Amazon Alexa Leads Revenue Charge

The record-breaking holiday quarter was largely driven by the Echo Dot, a smart speaker powered by the Alexa digital assistant. The Echo Dot was the highest selling item across all global markets. Amazon’s AWS cloud service was also a strong earner, generating $7.43 billion in holiday revenue, an increase of 45% compared to the previous year.

While Amazon’s ecommerce and cloud computing business lines are strong, the physical retail market is less impressive. The company generated just $4.4 billion in revenue from Whole Foods and Amazon Go stores.

A Strong Turnaround, But Still Not Enough for Some Investors

Strong earnings from the holiday quarter will help to offset last year’s disappointing third quarter. From July to September of 2018, It generated $56 billion in sales, which was slightly below Wall Street’s estimate of $57.10 billion. Q3 results preceded a period of high volatility in the market where Amazon stock declined 24% between October and December.

Despite having its best holiday quarter yet, investors are still wary of Amazon stock. Share price was up 2.89% at the close of the market on Wednesday, but then declined -4.87% in after-hours trading. The selloff was largely related to Amazon’s guidance for Q1 2019.

First Quarter of This Year Will be a Slow One for Amazon

Analysts were expecting to see revenue of up to $60.83 billion from the current quarter. Amazon disappointed the market at the end of their earnings call by giving a reduced guidance with a bottom of $56 billion.

Amazon said on Thursday that it will increase spending this year, which could cut into profits. CFO Brian Olsavsky told investors that “While we will continue to concurrently drive growth and customer offering and Prime benefits, we certainly do take costs seriously and we will continue to work on operational efficiencies. I would expect investments to increase relative to 2018.”

Amazon is currently undergoing a significant expansion with new offices to be opened near Washington D.C. and in New York. It will spend up to $5 billion on the expansion project, creating 50,000 new jobs.

The earnings report is a mixed bag. While holiday revenue was seriously impressive, lower guidance for the first quarter could leave investors cold in the coming weeks.

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