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Amazon Q1 Earnings Should Yield Positive Stock Price Movement

- By Sangara Narayanan

Amazon (AMZN) blew all first quarter 2017 estimates out of the water as overall sales grew by 22% during the quarter compared to prior period. Wall Street was expecting the retail giant to post earnings per share of $1.12 and revenues of $35.3 billion, while the company reported $1.48 earnings per share and $35.7 billion in revenues.

Sales grew across the board as all three segments - North America retail, International retail and Amazon Web Services - reported strong double-digit sales growth during the quarter.


Image Credits: 1red

Amazon's cloud unit, AWS, continued its above-average growth momentum despite increasing competition. Microsoft, IBM, Google and Oracle are competing with Amazon and investing billions of dollars to capture the fast-growing cloud market. But Amazon is showing no signs of stress as AWS reported 43% sales growth during the quarter compared to prior period.


Amazon retail operations in North America continue to grow at a clip, recording $20.99 billion in sales during the quarter compared to $16.99 billion last year, growth of 23%. In the last four quarters, Amazon has made $83.78 billion in revenues, and operating margins have been hovering around the 3% mark for the past two quarters. Amazon added nearly $4 billion in sales during this quarter compared to last year, and continues to aggressively eat into the traditional retail market in North America.


International segment revenues touched $11.051 billion compared to $9.566 billion during the year-ago period, representing growth of 15.5%. Sales growth was 21% in constant currency as a strengthening dollar hurt the international segment's top line deeply.

Amazon continues to post operating losses in the international segment, as the company is still in the process of establishing itself in many major markets around the world. It will be very difficult for the bottom line to improve, because Amazon still lacks scale in some of these markets where it is already operating, and it is in the process of adding a few more to the list this year.

As a retail company, margins will always be low when volume is low. With more countries being added, Amazon will have to spend a lot of money and push hard to increase volume, which will continue to hurt operating numbers.

The earnings beat and continuing sales momentum, despite intense competition in all three segments, will definitely help the stock keep moving North. As Amazon keeps inching towards $100 billion in sales from its North American retail segment, the stock price is already well on its way to cross $1000.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

This article first appeared on GuruFocus.