Amazon's (AMZN) Q2 Earnings & Sales Beat Estimates, Up Y/Y
Amazon.com AMZN delivered second-quarter 2023 earnings of 65 cents per share against a loss of 20 cents per share recorded in the year-ago quarter.
AMZN’s net income, totaling $6.7 billion, is inclusive of a pretax valuation gain of $0.2 billion in the non-operating expenses associated with its investment in Rivian Automotive.
The adjusted bottom-line figure stands at earnings of 63 cents per share, topping the Zacks Consensus Estimate by 85.3%.
Net sales of $134.4 billion rose 11% year over year. The figure exceeded management’s guided range of $127-$133 billion and surpassed the Zacks Consensus Estimate of $131.5 billion.
Amazon witnessed a $0.3 billion impact from unfavorable fluctuations in foreign exchange rates.
Solid momentum across North America and International segments contributed well.
Strength in Amazon Web Services (AWS) segment was a major positive. Moreover, the company witnessed improved momentum among cloud customers compared with the last quarter, in which they were seen adopting cost-cutting measures to optimize their cloud spending in response to the tough economic scenario. Now, these customers started shifting from cost optimization to new workload deployment, which helped stabilize AWS’ growth in the reported quarter.
This apart, improvement in online retail businesses performance drove the results. A growing advertising business benefited the company in the reported quarter.
AWS’ deepening focus on generative AI and Large Language Models is likely to continue aiding it in gaining momentum among cloud customers in the near term.
Amazon’s strong global presence, growing Prime momentum, improving Alexa skills, expanding smart device portfolio and growing efforts toward gaining strong traction among small and medium businesses are likely to drive its financial performance in the days ahead.
AMZN has gained 53.5% in the year-to-date period, outperforming the industry’s growth of 34.5%.
Shares of Amazon surged 8.7% in after-hours trading. This was primarily attributed to better-than-expected results. The upturn in e-commerce business and stabilization in AWS, along with the outlook for third-quarter sales, remain noteworthy.
Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote
Top-Line Details
Product sales (43.9% of sales) increased 4.3% year over year to $59.03 billion. Service sales (56.1% of sales) rose 16.5% from the year-ago quarter’s level to $75.35 billion.
By segment, North America revenues (61% of sales) rose 11% from the year-ago quarter’s level to $82.5 billion, which came ahead of the Zacks Consensus Estimate of $81.3 billion.
International revenues (22% of sales) increased 10% year over year to $29.7 billion, which surpassed the consensus mark of $28.6 billion.
Amazon Web Services’ (AWS) revenues (17% of sales) rose 12% year over year to $22.1 billion, which topped the consensus mark of $21.5 billion.
This apart, strengthening relationships with third-party sellers remained a positive. In the reported quarter, sales generated by third-party seller services rose 18% on a year-over-year basis to $32.3 billion, which surpassed the Zacks Consensus Estimate of $30.9 billion.
Sales from robust advertising services increased by 22% to $10.7 billion, which came ahead of the consensus mark of $10.3 billion.
AMZN experienced year-over-year growth of 6% in its physical store sales, which stood at $5.02 billion in the reported quarter. The figure beat the consensus mark of $4.9 billion.
The company’s online store sales stood at $52.9 billion, up 4% year over year. This was attributed to an improvement in the online shopping activities of the customers. The figure also came ahead of the Zacks Consensus Estimate of $52.7 billion.
Strength in Prime was a positive. Amazon witnessed 14% growth in its subscription services sales, which were $9.9 billion in the reported quarter. The figure beat the consensus mark of $9.7 billion.
Growing momentum with Same-Day and One-Day delivery services was a positive. Also, the expanding original content and overall content portfolio on Prime Video continued to accelerate Prime engagement.
Operating Details
Operating expenses were $126.7 billion, up 7.4% from the year-ago quarter’s level. As a percentage of revenues, the figure contracted by 300 basis points (bps) on a year-over-year basis to 94.3%.
The cost of sales, fulfillment, technology and infrastructure, sales and marketing and general and administrative expenses increased by 4.4%, 4.7%, 21.3%, 6.5% and 10.3% to $69.4 billion, $21.3 billion, $21.9 billion, $10.7 billion and $3.2 billion, respectively, on a year-over-year basis.
Other operating expenses were $146 million in the reported quarter, up 62.2% year over year.
Overall operating income increased by 131.6% from the year-ago quarter’s level to $7.7 billion. The operating margin expanded 300 bps from the year-ago quarter’s level to 5.7%.
Operating income for AWS was $5.4 billion, down 6.1% year over year.
The North America segment reported an operating income of $3.2 billion against an operating loss of $627 million in the prior-year quarter. Also, the International segment reported an operating loss of $895 million compared with a loss of $1.8 billion in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2023, cash and cash equivalents were $49.5 billion compared with $49.3 billion as of Mar 31, 2023. Marketable securities totaled $14.4 billion at the end of the second quarter, down from $15.1 billion at the end of the first quarter.
Long-term debt was $63.1 billion in the reported quarter, down from $67.1 billion in the previous quarter.
In the second quarter, AMZN generated $16.5 billion of cash from operations, up from $4.8 billion in the first quarter.
On a trailing 12-month basis, operating cash flow came in at $61.8 billion. Free cash flow was $7.9 billion.
Guidance
For third-quarter 2023, Amazon expects net sales between $138 billion and $143 billion. Net sales are expected to grow 9-13% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for net sales is pegged at $138.18 billion.
Management projects a favorable foreign exchange impact of 120 bps.
Operating income is anticipated between $5.5 billion and $8.5 billion.
Zacks Rank & Stocks to Consider
Currently, Amazon carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the retail-wholesale sector are BJ’s Restaurants BJRI, Domino’s Pizza DPZ and Lithia Motors LAD. While BJ’s Restaurants and Domino’s Pizza sport a Zacks Rank #1 (Strong Buy), Lithia Motors carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
BJ’s Restaurants has gained 37.3% on a year-to-date basis. The long-term earnings growth rate for BJRI is currently projected at 15%.
Domino’s Pizza has gained 15.9% on a year-to-date basis. The long-term earnings growth rate for DPZ is currently projected at 12.97%.
Lithia Motors has gained 47.6% on a year-to-date basis. The long-term earnings growth rate for LAD is currently projected at 3%.
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