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Amazon (AMZN) Q2 Earnings Top Estimates, Sales Rise Y/Y

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Amazon.com AMZN reported second-quarter 2021 earnings of $15.12 per share, beating the Zacks Consensus Estimate by 23.7%. The bottom line also improved 46.8% from the year-ago quarter but declined4.2% from the previous quarter.

Net sales of $113.1 billion rose 27% year over year and 4.2% sequentially. Further, the figure was within the management’s guidance of $110-$116 billion. However, it missed the Zacks Consensus Estimate of $115.1billion.

North America revenues (60% of sales) rose 22% from the year-ago quarter to $67.6 billion. International revenues (27% of sales) climbed 36% year over year to $30.7 billion. Amazon Web Services (“AWS”) revenues (13% of sales) rose 37% year over year to $14.8 billion.

Strong momentum across Prime members remained a tailwind. The company witnessed strong growth in its subscription services in the reported quarter. Sales from these services went up 28% from the prior-year quarter to $7.9 billion.

The company’s continued momentum in online sales remained a positive. In the second quarter, online store sales rose 16% from the prior-year quarter to $53.15 billion.

Strengthening relationships with third-party sellers remained a major positive. In the reported quarter, sales generated by third-party seller services rose 38% on a year-over-year basis to $25.1 billion.

Solid AWS momentum and strengthening smart device offerings continued to benefit the company’s second-quarter performance.

Also, favorable foreign exchange rates drove top-line growth.

Notably, the company’s shares plunged 7% in the pre-market trading, which can be attributed to its lower-than-expected second-quarter sales. Also, the mid-point of the company's guided range for third-quarter sales falls below the consensus estimate.

Nevertheless, the company’s strong global presence, growing Prime momentum, robust data center network and an increasing number of AWS regions, improving Alexa skills, expanding smart devices portfolio, and growing efforts toward gaining strong traction among small and medium businesses are likely to drive its near-term financial performance.

Coming to the price performance, Amazon has returned 2.5% on a year-to-date basis against the industry’s decline of 19.5%.

 

Zacks Investment Research
Zacks Investment Research


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Prime & Retail Momentum

The company’saggressive retail strategies continued to aid its second-quarter results.

The opening of Amazon Fresh supermarket with the “Just Walk Out” cashierless technology in Bellevue, WA, expanded its grocery retail efforts. Increasing number of Amazon Fresh stores, which currently stands at 15 in the United States and the U.K., remained noteworthy.

In regard to fashion retail, expanding head-to-toe outfit recommendations, which are now available on the Fashion product pages in the United States, Germany, France, India, Italy and Spain, have bolstered Amazon Fashion’s global footprint.

The company strengthened its pharma retail efforts by introducing a six-month supply option for eligible medications on Amazon Pharmacy.

In addition to these, Amazon’s strength in Prime,which is currently available in 22 countries, continued to be the key catalyst.

Strong Prime Day performance across 20 countries contributed well to the second-quarter results of the company.

Growing momentum across Business Prime, which currently caters to more than1 million business customers of all sizes across the world, remained a positive.

Expanding original content and the overall content portfolio on Prime Video continued to accelerate Prime engagement.

We note that Prime Video streamed the returning seasons of its original series and specials like THEM, Solos, The Underground Railroad, Panic, Flack, My Life, Bosch and the Prime Day Show.

The company premiered 20 local originals— Dom in Brazil, Chivas: El Rebaño Sagrado in Mexico, Clarkson’s Farm in the U.K., La Leyenda de Sergio Ramos in Spain, Mixte in France, and Head Above Water in Australia.

Also, Amazon Original movie — Tom Clancy’s Without Remorse —got released on Prime Video.

Along with these, expanding live sports content on Prime Video alongwith winning streaming deals with sports leagues remained positives.

Expanding AWS Portfolio: A Key Catalyst

AWS, which witnessed strong growth in the topline, continued to gain customer momentum in the second quarter, courtesy of its highly reliable services portfolio.

In the second quarter, AWS announced the general availability of its fully managed container application serviceAWS App Runner.

The company made its fully managed operations service Amazon DevOps Guru generally accessible. The service detects operational issues automatically and suggests specific actions for the same.

Amazon Location Service, which makes the addition of location functionality seamless, was made generally available.

Coming to regions and Availability Zones, the company has 81 Availability Zones across 25 geographic regions. The company intends to roll out additional 21 Availability Zones and seven AWS regions.

On the heels of the expanding services portfolio, regions and Availability Zones, AWS experienced strong growth in its clientele with the addition of BMO Financial Group, which selected AWS as its preferred and strategic cloud provider. AWS was also selected by Swisscom as the preferred public cloud provider.

Ferrari selected AWS as its official cloud, Machine Learning, and AI provider. In addition to this, Bell Canada and Bancolombia were added to the AWS clientele.

Robust Smart Devices Portfolio

Amazon’s expanding portfolio of Echo smart speakers remained beneficial. Notably, the company launched Echo Show devices, namely the new Echo Show 8, Echo Show 5 and the first Echo Show 5 Kids,inthe second quarter.

Apart from this, Ring made the Floodlight Cam Wired Pro available to the customers in the reported quarter.

Additionally, advancing the skills and features of Alexa helped the company in winning deals in the reported quarter.

Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote

Quarter in Detail

Product sales (51.3% of sales) increased 15.4% year over year to $58.004 billion. Service sales (48.7% of sales) rose 42.4% from the year-ago quarter to $55.1 billion.

Operating expenses were $105.4 billion, up 26.9% from the year-ago quarter. As a percentage of revenues, the figure contracted 20 basis points (bps) on a year-over-year basis to 93.2%.

Cost of sales, fulfillment, technology & content, marketing, and general & administrative expenses increased 21.9%, 27.8%, 33.5%, 73.2% and 36.6% to $64.2 billion, $17.6 billion, $13.9 billion, $7.5 billion and $2.2 billion, respectively, on a year-over-year basis.

Other operating expenses were $11 million in the reported quarter, down from $290 million in the year-ago quarter.

Overall operating income increased 31.8% from the year-ago quarter to $7.7 billion. The operating margin expanded 20 bps from the year-ago quarter to 6.8%.

Operating income for AWS was $4.2 billion, up 24.9% year over year. The same for North America improved 46.9% from the prior-year quarter to $3.15 billion. The International segment’s operating income was 362 million, 4.9% up year over year.

Balance Sheet & Cash Flow

As of Jun 30, 2021, cash and cash equivalents were $40.4 billion, up from $33.8 billion as of Mar 31, 2021. Marketable securities totaled $49.5 billion at the end of the second quarter, up from $39.4billion at the end of the first quarter.

Long-term debt was $50.3 billion in the reported quarter compared with $31.9 billion in the previous quarter.

The company generated $12.7 billion incash from operation in the second quarter, which increased from $4.2 billion in the prior quarter.

On a trailing 12-month basis, free cash flow was $12.1 billion in the reported quarter, down from $26.4 billion in the prior quarter.

Guidance

For third-quarter 2021, Amazon expects net sales between $106 billion and $112 billion. The figure is anticipated to improve 10-16% on a year-over-year basis. The Zacks Consensus Estimate for net sales is pegged at $119.25 billion.

Management projects a favorable foreign exchange impact of 70 bps.

Income from operational activities is likely to be between$2.5 billion and$6 billion.

The guidance is inclusive of $1 billion costs related to COVID-19.

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

AutoNation, Inc. AN, Booking Holdings, Inc. BKNG and Revolve Group, Inc. RVLV are some better-ranked stocks in the broader Retail-Wholesale sector. While AutoNation currently sports a Zacks Rank #1 (Strong Buy), Booking Holdings and Revolve carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for AutoNation, Booking Holdings and Revolve are pegged at 20.16%, 16.5% and 14.93%, respectively.

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