Amazon.com, Inc. delivered spectacular quarterly numbers last week. It was the second straight quarter of earnings topping estimates.
Growth was never an issue for the e-commerce giant. But Wall Street never took kindly to the fact that in search of that stellar growth the firm always lost money.
That narrative slowly seems to be changing. Although meager at just $79 million or 17 cents per share, last quarter’s profit surprised analysts. Most were expecting Amazon to be in the red just like it has been so many times in the recent past.
But by logging two straight earnings beats, Amazon.com, Inc. has managed to silence bears, who never spared an opportunity to question its profit making ability.
Bears now don’t have a stick to beat, and bulls have repeatedly been validated. So does that make Amazon the perfect tech stock? Evidence seems to suggest so.
Amazon Web Services is proving to be decisive
Most analysts are unanimous in claiming that Amazon Web Services, the rapidly growing cloud computing unit, was the driving force behind last week’s smashing results. Sales came in at $2.09 billion compared to $1.17 billion in the previous period – a 79 percent y-o-y growth. And what should irk critics the most is that the sales growth came with a very impressive operating profit of $521 million.
Amazon seems devoted to profitability
Some investors may scoff at the fact that two quarters of profit is not suggestive of a broad change in trend. But gross margins have been a key focus area for quite some time. And the results are now showing.
The all-important AWS arm is still in its infancy. But even so early in its life, it’s witnessing brisk margin expansion. Based on third quarter numbers, operating margins were 25 percent, versus 21.4 percent in the second quarter. A year ago, it stood at a paltry 8.4 percent. Bottom-line, margins are improving, and as a result, profits are moving higher.
Amazon is cozying up to Wall Street
What Wall Street thought never figured on Amazon.com, Inc. ’s priority list. But things are changing on that front too. Breaking down AWS numbers is a case in point. Skeptics will say Jeff Bezos knew that numbers were strong. But Bezos of the old never seemed to care about what investors thought!
Add to that the recent moves to shut down its disappointing hardware biz. The Fire Phone was close to Bezos’ heart. And by deciding to wind it down, Amazon is again demonstrating its resolve to win over the few cynics left on Wall Street.
The All Important Holiday Quarter Beckons
The holiday quarter is make or break for most retailers. And Amazon.com, Inc. has provided impressive guidance for the current quarter. Sales should be between $33.5 billion to $36.75 billion, up between 14 percent and 25 percent from a year ago. Operating income is forecast to come in between $80 million to $1.28 billion, versus $591 million in the same quarter last year.
It’s worth noting that of late, Amazon has been hitting the higher end of its ranges. It does so during the current quarter, and there may be no stopping the stock.