U.S. Markets close in 5 hrs 35 mins

Amazon earnings beat expectations by a wide margin

Krystal Hu
Reporter

Amazon (AMZN) reported earnings of $7.09 per share, crushing expectations of $4.67.

The e-commerce giant recorded $59.7 billion in sales for the first quarter of 2019 on Thursday, which is inline with analyst estimates. That fell into the higher range of the guidance the company provided in January, which was net sales of $56 billion to $60 billion.

It also hit a record quarterly profit of $3.6 billion. Amazon Web Services (AWS) business, which has been steadily contributing to profitability, secured $7.7 billion in sales during the first quarter, representing a growth of 41.4% year-over-year. Advertising business, which is reported under other revenue, grew 36% this quarter.

Not all of its businesses are expanding at full speed. Product sales only went up by 8.5% this quarter, while the growth it had one year ago was 33.2%.

As the online juggernaut makes forays into brick-and-mortar retail, the physical sales numbers, most from Whole Foods stores, also caught investors’ attention. This quarter, it reported a 1% increase in physical store sales, reverting the downward trend from last quarter.

“On the non-AWS side, sales are slowing, with physical stores (i.e. Whole Foods) essentially flat, and we note the reduced growth is largely generated by third-party sales,” Moody's Lead Retail Analyst Charlie O'Shea said. “However the real story on the retail side is margin expansion, which is up around 360 bps to almost 6.4%, and is likely driven in large part by the rapidly-growing and higher-margin advertising business.”

Amazon 2019 Q1 earnings in a chart

Wall Street holds high hopes for Amazon’s retail and cloud business. “Amazon is well-positioned as the leader in two large/fast growing markets (retail and cloud), and we believe the company’s advertising business, which is still in the early stages, will continue to benefit as more businesses shift ad budgets Amazon’s way given its dominance in product search,” wrote analysts at Stifel, who have a price target of $2,300 for the Seattle-based firm.

Marco data offers reasons to be optimistic. U.S. retail sales in the first quarter grew 2.7% despite a slow February. Analysts at Moody’s say strong economic fundamentals, with lower unemployment and wage growth could fuel higher consumer spending this year.

International market loss narrows

Amazon stock year-to-date performance versus S&P 500.

Outside its home turf, Amazon is trying to grow Prime users. The first-quarter earnings have sent some positive signals. Amazon lost $90 million in the international market this quarter, improving from the $622 million it lost one year ago.

Competition with local players and regulatory changes can add uncertainties to its global expansion. Investors are looking for more comments from the management on the impact of the new e-commerce regulations in India, which went into effect in February. The law bans online retailers from selling items through vendors in which they have an equity stake, and also from having sellers sell exclusively on their platforms. As a result, some of Amazon’s private label products initially got removed from the website.

Last week, Amazon closed its marketplace in China, but it should have minimal impact on its financials, since its market share in China has fallen into less than 1%, according to iResearch.

For the second quarter, the largest online retailer in the world expects net sales between $59.5 billion and $63.5 billion, the midpoint of which remains below analysts’ expectation.

Amazon stock was up 1.6% after-hours on the earnings. Its shares have risen by 28.7% year-to-date.

Krystal Hu covers technology and China for Yahoo Finance. Write to her via krystalh@yahoofinance.com or follow her on Twitter.

Read more:

Amazon shuffles thousands of workers in its quest to revamp delivery

Apple cuts iPhone XR price for partner sellers in China

Amazon eyes closed Sears stores for Whole Foods expansion