Amazon Q2 18 – Profitability streak

Hopefully, the indication of profits can become reality.

• Amazon produced good results making up for a revenue shortfall with profitability, raising hopes yet again that at last Amazon is at last beginning to make money for its owners.
• Q2 18 revenues / EPS were $52.9bn / $5.07 slightly adrift of revenue expectations of $57.6bn but well ahead of consensus EPS which was $2.53.
• Part of the reason for the higher profitability was more sales going through third-party merchants operating on the site.
• On these transactions, Amazon simply takes a commission (like Alibaba) which has much higher margins than selling the product directly.
• AWS had another good quarter growing 49% with excellent profitability at 25% EBIT margin.
• Azure is growing around double the rate of AWS, but it is so much smaller that it will be a very long time (if ever) before it catches up with AWS.
• This combined with better profitability in the USA and lower losses overseas is what drove margins to 5.6% at the group level.
• Amazon used the same trick again to keep the market happy by guiding a bit weakly on revenues but handsomely beating expectations on Q3 18 profitability.
• Q3 18 revenues / EBIT is forecast to be $54.0bn – $57.5bn ($55.75bn) / $1.4bn – $2.4bn ($1.9bn).
• Amazon has now produced a series of results where it has shown improving profitability and if this is the beginning of the maturation of the business then the valuation should start to become a little more sensible.
• However, it still remains very far from that today and Amazon remains a stock I do not wish to tangle with.
• I would prefer instead, Alphabet, Baidu or Tencent.