The time has come for Amazon (AMZN) - Get Amazon.com, Inc. Report to release its second quarter numbers. So far, Big Tech has impressed on results – even though stock prices, in most cases, have not risen much to reflect the strong performance. Will the e-commerce behemoth follow through and wow Amazon stock investors?
The Amazon Maven will analyze the results and the conference call. Tune in to our live coverage, which starts just before 4 p.m. EST (1 p.m. Seattle time), on July 29. The earnings release should come out immediately after the closing bell. We will then pause for a moment and catch the earnings call, which is scheduled to kick off at 5:30 p.m. ET (2:30 p.m. Seattle time).
Before the report comes out, check out our most recent articles on thestreet.com/amazon – or review the bullet points below. To skip the short preview, scroll straight down to the "Live Coverage Starts Here!" section for real time insights.
(Read more from the Amazon Maven: Amazon Stock: Bitcoin News Does Not Change The Thesis)
Previewing Amazon’s Q2 earnings
- Wall Street expects revenue growth to approach 30% in the second quarter. EPS is projected at $12.25, which would represent a 19% increase over very tough, early pandemic comps (in Q2 of 2020, EPS nearly doubled year-over-year).
- E-commerce seems to be alive and well, even in a post-pandemic environment in which stay-at-home habits are less of a tailwind. It will also be interesting to see how, and by how much, physical stores might rebound this quarter.
- Continued momentum in cloud infrastructure should lead to solid performance in Amazon Web Services – peer Microsoft’s Azure grew revenues at a very healthy pace of 45% (ex-FX), as reported on July 27. Keep an eye on how AWS’ op profits trend.
- Traders: set expectations right. Amazon stock tends to perform worse than average in the two weeks following earnings day. I would not be surprised to see this happen again this time, even if the results are strong, since AMZN has been up 12% in the past couple of months.
For quick reference on what to pay closer attention to when Amazon reports, below is a breakdown of the company’s revenues and op profits in 2020 by segment and sub-segment.
Live coverage starts here!
3:00 a.m. PST: Please stand by for our live coverage Amazon’s Q2 report! Refresh your browser for updates below, if it does not do so automatically.
8:20 a.m. PST: Hello, everyone! Quick check on price action this morning...
8:22 a.m. PST: Markets are in the green: S&P 500, Dow, Nasdaq, Russell 2000... gold, oil, yields, bitcoin, you name it! But our beloved Amazon is a bit slow to react ahead of the earnings report: -0.5%.
8:24 a.m. PST: I don't see any concern out there for Amazon, this one percentage point underperformance against the Nasdaq for the day must be pure earnings jitters.
8:25 a.m. PST: I will be back just before the closing bell. Stay tuned for our live blog coverage of Amazon's earnings day!
12:52 p.m. PST: Let's go!! It's time for the Amazon Maven's coverage of Amazon's Q2 earnings results!
12:53 p.m. PST: Expect Amazon's report to drop immediately after the closing bell, maybe 2-3 minutes later.
12:55 p.m. PST: Here's how Amazon will likely close the trading session today, down -1.1%. The stock is cutting against the grain, as the S&P 500 and Nasdaq will probably end in the green.
12:57 p.m. PST: As a quick benchmark, Microsoft's Azure growth in Q2 calendar decelerated 1 percentage point sequentially. What will happen to AWS' growth this time? It accelerated 4 points sequentially last quarter.
1:00 p.m. PST: Recap of consensus... revenues $115.1 billion, EPS $12.24. Operating income $7.8 billion.
1:00 p.m. PST: Here's the closing bell! I'm ready!!
1:01 p.m. PST: Amazon stock is down -4%! I still don't see the results, but the knee-jerk reaction is not great.
1:03 p.m. PST: Revenue miss, oops! Big EPS beat, CNBC reports. "You can't miss on the revenue line", says Stephanie Link from the TV network.
1:05 p.m. PST: $113.1 billion revenues is well off consensus. EPS $15.12 is well above consensus. Guidance for next quarter: sales of $106 billion to $112 billion against $119 billion consensus. Double-ouch on revenues -- past and next quarter!
1:07 p.m. PST: AWS seems to have done really well! Growth of 37%!
1:08 p.m. PST: It looks like Amazon's problem was e-commerce this time.
1:10 p.m. PST: North America growth of 22% is pretty unimpressive for a company like Amazon, at least in the past year and a half. Worst since Q4 of 2019.
1:12 p.m. PST: Online store revenue growth of 13% is definitely the weak spot. The lowest in the past 6 quarters had been 25%.
1:13 p.m. PST: Physical stores up 10%, which is in line with the recovery that I expected to see post-pandemic.
1:14 p.m. PST: Third-party sellers up 34%, which is only good if not in the context of the COVID-19, stay-at-home tailwinds.
1:15 p.m. PST: After having covered Apple's outstanding report two days ago, which was pretty much pandemic-agnostic, I can say that Amazon has not fared as well as its peer from Cupertino coming out of the COVID-19 crisis.
1:17 p.m. PST: Now, of course, some perspective is needed. Amazon is huge, worth nearly $2 trillion, and the company is still posting double-digit revenue growth across all its reportable sub-segments as if it were a small underdog climbing up the ranks. Here's your glass half full.
1:20 p.m. PST: Table above should give you all a good sense of revenue growth rates for each of Amazon's main segments.
1:24 p.m. PST: Below is another interesting visual. Check out the orange line, and notice how North America revenue growth dips sharply from Q1 to Q2 of 2021. The "bump" between Q4 of 2019 and Q1 of 2021 is very clearly the pandemic period.
1:28 p.m. PST: Going through the earnings report, I see some mention of "Prime members shopping more during Prime Day than any previous Prime Day". I know that this is a bit vague, but the "problem" (if I can call it that) does not seem to have been this important event for Amazon.
1:28 p.m. PST: Ok, moving away from revenues for a moment...
1:30 p.m. PST: Operating income of $7.7 billion was actually just shy of consensus $7.8 billion. Interesting to see it, since EPS was so much higher than consensus. This could be a function of hefty $1.3 billion in "other income" or smaller-than-usual tax rate.
1:33 p.m. PST: Worth noting, however, Amazon's op income was very close to the higher end of its guidance provided three months ago.
1:34 p.m. PST: So, here's my first recap of the evening...
1:37 p.m. PST: The days of intense "shopping from home" driven by the pandemic seem to be over for Amazon. This is not to say, however, that e-commerce is struggling. Instead, it is just not performing as robustly anymore (and likely will not continue to, judging by soft revenue guidance).
1:39 p.m. PST: The better news? Cloud is still on fire. Growth in AWS has not been this good since Q2 of 2019. And that's not all: the physical channel is recovering, while subscription services remain in very decent shape.
1:42 p.m. PST: Below is AWS revenues since 2014 (blue area) along with quarterly YOY growth rates (orange line). Notice the bump off the mid-2020 low. The business is gaining scale while still growing quite strongly.
1:42 p.m. PST: Now, the question is... does AMZN deserve to be trading down -6.5% in after hours? Well, I think market reaction is understandable.
1:43 p.m. PST: It is not unreasonable to think that some (traders, mostly) were hanging on to Amazon stock in hopes that the company would continue to crush on e-commerce through 2021. Those people are probably heading for the exits.
1:45 p.m. PST: For the longer-term thesis, is Amazon's growth story in digital retail, cloud, and consumer products and services dead? Not even close. So, patient investors might actually appreciate tomorrow's likely pullback in share price.
1:50 p.m. PST: How about you? Do you think the after-hours decline is fair? Check out the poll above.
1:51 p.m. PST: Ok, now the Amazon Maven takes a 40-minute break. We will be back for the earnings call, at 2:30 p.m. PST (5:30 p.m. EST). Link is here.
2:30 p.m. PST: And we are back!
2:30 p.m. PST: The earnings call should start now. Will the new CEO be present?
2:31 p.m. PST: Head of IR has the mic. The CFO will be next, and apparently the only one to present and discuss the results.
2:33 p.m. PST: After getting the disclaimers out of the way, CFO Brian Olsavsky now has the floor.
2:34 p.m. PST: Brian talks about a successful Prime Day. Biggest two-day ever for small businesses.
2:34 p.m. PST: Prime Day added 400 bps of revenues YOY. This pretty much clarifies how much revenues Amazon made in those two days.
2:37 p.m. PST: Recap of growth rates... before COVID-19, sales growth of low 20%. With pandemic, growth jumped to mid 30%. Operations network struggled to keep up with demand initially, but capacity was added and supported even higher revenue growth. Now, Amazon is lapping tough comps, plus people have started to leave their homes. Trend should continue going forward.
2:38 p.m. PST: Brian urges analysts to look at growth in multi-year trends, to smooth out the recent volatility in sales. He adds that tough comps will remain a headwind in the foreseeable future.
2:39 p.m. PST: Ramping ads business is mentioned. Next, AWS is discussed. This was a highlight of the quarter.
2:40 p.m. PST: Investments in operations... fulfilment network continues to require capital inputs. More to come in the second half 2021.
2:41 p.m. PST: Q&A has started.
2:44 p.m. PST: Question on other headwinds to revenue guidance, aside from the reopening. Brian says that anticipating impact of COVID has been hard. Increase in mobility (people getting vaccinated and getting out of the home) and tough comps are the main factors. Prime Day was a good event.
2:47 p.m. PST: Question on results outside online stores, any deliberate shifts towards services, etc.? Brian says that third party has been evolving well. Advertising is an important piece of the puzzle too. AWS has been 15 years in the development, paying dividends now, nearly $60 billion revenue run rate per year.
2:47 p.m. PST: Question on Prime Day, will there be more than one per year? Brian says "no plans".
2:50 p.m. PST: Question on fulfilment cost, high YOY, what is driving it? CFO says that lots of capacity being added to keep up with rapidly increasing volume. Most of the capex spend is still ahead, in the second half of 2021. Doubling the network in the past 18 months. Wage pressure is also a factor.
2:52 p.m. PST: Question on one-day and same-day delivery in Europe, how are similar initiatives being factored into the company's investment plans? Customers respond well to fast, quality delivery. Amazon is investing in the transportation network, middle and last mile, more investment to come.
2:56 p.m. PST: Question on online store, any softness in specific product categories? Brian refers back to Q2 of last year and mentions the normalization of the mix from pandemic to post-pandemic periods. On stickiness of purchases, consumables, cleaning supplies, certain electronics were not as strong. Likes Prime member engagement.
2:58 p.m. PST: Question on small business vertical, any upside from them in third party sellers? Continue to see momentum, 56% of total paid units comes from third party, which continues to increase.
2:59 p.m. PST: Question on labor, is there a need for more hiring? Brian can't look too far into the future, it's a combination of reopening and other factors. Count on wage pressure remaining for the immediate future.
3:02 p.m. PST: Question on strengthening of international op income, what is driving it? Trend has been favorable in the past 5 quarters. Major factors are acceleration of growth, leverage of the assets. Investment in expansion continues, with Portugal now a Prime country. It's a mixed bag of factors helping the business.
3:04 p.m. PST: Question on AWS strength, anything related to reopening? Last year, there was pressure on client spending as COVID fears built up. This year was a recovery from that. Strong performance this year with some good contracts signed.
3:10 p.m. PST: Question on CEO transition, any change in strategic direction? Expect Andy Jassy to hit the ground running. High bar for customer experience and operational efficiency. Jeff Bezos will remain very involved from the chairman position.
3:10 p.m. PST: Final question on AWS margin, what drives the fluctuation? Growth helps to leverage the assets, but on the flip side there are price decreases (large clients, multi-year contracts), plus investment in growth. Margins will bounce around. This time, 150 bps of FX headwind.
3:10 p.m. PST: Ok, everyone! This is it.
3:10 p.m. PST: The stock is still down a solid -7% in after hours.
3:11 p.m. PST: From the Q&A section, the management team seemed to acknowledge the less-than-enthusiastic performance of online stores, pointing at tough comps and the return to "normalcy" as culprits.
3:12 p.m. PST: The bad news is that this is not temporary. Expect the next quarters to be more of the same. The good news is that, otherwise, Amazon performed very well.
3:13 p.m. PST: AWS did well, better than I anticipated. Pandemic losers, like physical stores, came back to life. Advertising becomes a growth opportunity to keep an eye on. Third party sellers become an increasingly important piece of the business.
3:14 p.m. PST: With that, I leave you with the Twitter poll above. Thanks for being with us today, and take care!