Amazon Beats on Revenue but Misses on Earnings-Live Blog

Eric Jhonsa

Expectations were running high for Amazon AMZN in the wake of the coronavirus lockdowns boosting e-commerce sales, and the tech giant apparently didn’t do as much to meet or exceed them as investors hoped.

Revenue of $75.45 billion beat a $73.69 billion consensus. However, GAAP EPS of $5.01 missed a $6.23 consensus. Shares were down about 4.6% in after hours trading on Thursday. 

TheStreet and RealMoney tech columnist Eric Jhonsa is analyzing the company's earnings report due out after the close, and its call with analysts that's scheduled to begin at 5:30 p.m. ET.

Comments (66)
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Eric Jhonsa
Eric Jhonsa

Editor

Amazon's call has ended. Shares are down 4.2% after hours to $2,370.30 after Amazon, which was dealing with a high bar going into earnings, delivered mixed Q1 results, with revenue beating on the back of better-than-expected North American segment growth and EPS missing due to aggressive spending.

Amazon also reported 33% AWS growth, issued in-line Q2 revenue guidance that might be conservative given its guidance history, and issued below-consensus operating income guidance that the company suggests would have been ~$4B higher if not for COVID-19-related expenses.

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Q1 ad sales (recorded in Amazon's "Other" revenue line), and one about Amazon suggesting its hiring could go above the 175K it has announced.

Olsavsky: We don't have anything new to announce about hiring for now. We've already hired all of the 175K. Q1 ad sales growth was consistent with Q4's. There are also some other things in Amazon's "Other" revenue line item. We did see some ad pricing pressures in March. A large portion of our ad revenue is related to items on Amazon's site, which helps us. We think this part of our business will continue to prove its value.

Eric Jhonsa
Eric Jhonsa

Editor

Question about the share of third-parts units as a % of total units (52% in Q1 vs. 53% in Q4), and one about supply chain issues.

Olsavsky: There are still shortages of things such as masks and cleaning wipes. Third-party's mix is impacted by Amazon prioritizing essentials, more of which are sold directly. That has impacted fulfillment (FBA) revenue, but MFN transactions (shipments fulfilled by merchants themselves) have been growing well.

Eric Jhonsa
Eric Jhonsa

Editor

Question about changes to Prime shopping trends, and whether some could be long-term. Also one about Q2 revenue guidance.

Fildes: Online grocery sales are up strongly in March and April. We're working around the clock to add delivery capacity. Physical stores revenue up 8% in Q1 thanks to in-store Whole Foods shopping growth. We have seen growth moderate recently there.

Olsavsky: The increases we've seen in digital content consumption could have a lasting impact, since many consumers are using these services for the first time. People "are getting a better look" at what's available with their Prime memberships.

On Q2 guidance and whether it implies a late-quarter deceleration, he says demand has been strong and that Amazon's main concern is its ability to service that demand. Asserts that the challenge is "everything besides the top line." Improving cost structure, adding capacity, etc.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Amazon's performance in different geographies, and the impact of lower oil prices on costs.

Olsavsky: I don't have much for you on the second question. Lower fuel costs could help for things like long-haul trucking efforts. We're seeing "a lot of consistency" in how different geographies are acting during COVID-19 lockdowns. Biggest international impact has been in India. Prioritizing essentials there as well. French sales have been hurt by a court ruling (it has required Amazon warehouses to stay closed until 5/5).

Eric Jhonsa
Eric Jhonsa

Editor

Another question about AWS, and the impact of COVID on cloud adoption. Also one about profit guidance.

Olsavsky: We continue seeing healthy AWS adoption. Our AWS contract backlog continues growing. Its value proposition (most extensive feature set, largest partner base, etc.) is still in place. Seeing different performance in different industries.

Regarding profit guidance, he notes there are some efficiency gains from higher volumes, and that lower spend on things like marketing, travel and entertainment (echoes of Facbeook's comments) also help. Adds that Amazon is now lapping the 1-year anniversary of the start of its 1-day effort, and that extending the amount of time over which it records depreciation costs on AWS servers boosts its bottom line as well.

Eric Jhonsa
Eric Jhonsa

Editor

Question about fulfillment efficiency. Also one about AWS growth (33% in Q1), and whether it could pick up.

Olsavsky: We're happy with AWS' Q1 performance. COVID's impact on AWS varies a lot from industry to industry. Videoconferencing, gaming, remote learning, etc. seeing a lot of growth. Things like hospitality and travel have contracted. Macro conditions will have an impact on future growth.

Regarding fulfillment efficiency, he says Amazon is focused on fulfilling demand for essentials right now, and will work to improve delivery times for non-essentials and resume its 1-day rollout as things normalize.

Notes Amazon previously guided for ~$1B in costs related to support 1-day shipping, and that spending has helped it deal with the current environment.

Eric Jhonsa
Eric Jhonsa

Editor

Question about the impact of COVID-19 on Prime subscriber growth. Also one about any "learnings" Amazon has had lately about logistics.

Olsavsky: It's easier to get ready for a holiday or Prime Day than something like that. It's not something that we want to keep learning, but we're doing our best to adapt. We're seeing "a lot of pickup" in shopping activity among Prime members, also a lot more usage of Prime Video and other content services such as video rentals, Prime Video Channels, etc.

Eric Jhonsa
Eric Jhonsa

Editor

First question is about the $4B in incremental costs Amazon expects in Q2 related to COVID-19. Also a question about whether Amazon's Q2 spend changes it margin structure for an extended period of time.

Olsavsky: The cost of our COVID-19 testing efforts will be ~$300M in Q2. A lot of the higher costs we're seeing right now are related to our COVID response. Hard to tell how long this will last. We'll learn more in the next few weeks and months.

Says a lot of the expenses are temporary, while adding it's not clear how long they'll last.

Eric Jhonsa
Eric Jhonsa

Editor

The Q&A session is now starting.

Eric Jhonsa
Eric Jhonsa

Editor

Says Amazon recorded $400M in Q1 costs related to increased reserves for doubtful accounts.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky notes that a lot of the incremental revenue Amazon is seeing right now on lower-ASP products is basically coming at cost.

Eric Jhonsa
Eric Jhonsa

Editor

Mentions that demand has spikes for many AWS services, as AWS clients see spikes for their own apps/services. Microsoft and Google made similar remarks about their own cloud platforms.

Eric Jhonsa
Eric Jhonsa

Editor

Says third-party sellers still seeing strong growth.

Eric Jhonsa
Eric Jhonsa

Editor

Notes Amazon has cut marketing spending, and that grocery delivery capacity has grown over 60%.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky going over Amazon's various customer/employee safety protocols, as well as various other efforts to deal with the current environment.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky notes Amazon's saw major demand increases for consumer staples starting in March, along with lower demand for discretionary items.

Eric Jhonsa
Eric Jhonsa

Editor

CFO Brian Olsavsky now talking. Making some comments ahead of the Q&A session about what Amazon is currently experiencing.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's call is starting. The company is going over it's safe-harbor statement.

Eric Jhonsa
Eric Jhonsa

Editor

With Amazon down 5.5% post-earnings and Apple down 1.7% following its report, Nasdaq futures are currently down 1.3%.

Eric Jhonsa
Eric Jhonsa

Editor

Typically, Amazon's earnings calls don't feature any prepared remarks. Rather, following a safe-harbor statement, CFO Brian Olsavsky and IR chief Dave Fildes jump right into a Q&A session.

Eric Jhonsa
Eric Jhonsa

Editor

Here's the webcast link, for those interested.

Eric Jhonsa
Eric Jhonsa

Editor

Hi. I'm back to cover Amazon's earnings call, which should start in a few minutes.

Eric Jhonsa
Eric Jhonsa

Editor

I'm taking a short beak, but will be back to cover Amazon's earnings call, which starts at 5:30 P.M. ET.

Following a 34% YTD gain, Amazon's shares are currently down 5.2% after hours to $2,345 after the company posted mixed Q1 results (revenue beat, EPS missed), issued in-line Q2 revenue guidance (possibly conservative, given Amazon's history) and below-consensus operating income guidance.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's shares outstanding + restricted stock awards were up by 6M Y/Y to 513M. Unlike many other big-cap tech firms, Amazon doesn't have a buyback program to repurchase stock that it has issued.

Eric Jhonsa
Eric Jhonsa

Editor

With heavy shipping expense and opex growth weighing, the North American segment's op. income fell to $1.31B in Q1 from $2.29B a year earlier.

The International segment had a $398M op. loss, up from $90M a year earlier. Large Indian investments have been weighing on the segment's bottom line for a while.

AWS, on the other hand, saw its op. profit rise 38% to $3.08B. The fact that Amazon has been able to keep AWS' capex (and thus its depreciation expenses) in check with the help of more efficient data center spending helps out here.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's growth rates for various revenue streams in recent quarters. Online Stores' acceleration clearly pops out for Q1. Physical Stores (dominated by Whole Foods) also unsurprisingly did better than it has in recent quarters.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon ended March with $49.3B in cash and $23.4B in debt.

Unearned revenue (revenue it hasn't yet recognized for products/services it has already received payment for) totaled was up $1.6B Y/Y to $8.9B. Annual Prime membership fees account for much of this figure.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's GAAP gross margin fell 1.9 points Y/Y to 41.3%. High shipping expense growth was a headwind here.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon continues trading lower post-earnings: Shares are down 5.3% after hours to $2,344. Top-line numbers are generally pretty good, but high expectations and the bottom-line numbers seem to be weighing on the stock.

Eric Jhonsa
Eric Jhonsa

Editor

Notably, Amazon's direct purchases of property and equipment (driven by warehouse/logistics investments) more than doubled Y/Y to $6.8B, a major increase from Q4's 42% growth.

Spending on property and equipment via finance leases (driven by AWS capex) was down 18% to $2.17B, after growing 14% in Q4. It's worth noting here that capex can be lumpy from quarter to quarter.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's Q1 operating expense growth (Y/Y):

Fulfillment +34% to $11.53B
Tech/content +17% to $9.33B
Marketing +32% to $4.83B
G&A +24% to $1.45B

Eric Jhonsa
Eric Jhonsa

Editor

With paid unit sales soaring and Amazon already investing heavily in its delivery operations prior to March, shipping expenses grew 49% Y/Y to $10.94B. That's up from Q4's 43% clip.

Eric Jhonsa
Eric Jhonsa

Editor

"Other" revenue (dominated by ads) rose 44% to $3.91B, after growing 41% in Q4.

Eric Jhonsa
Eric Jhonsa

Editor

Subscription services revenue (dominated by Prime membership fees, but also covering digital content subscriptions) rose 28% to $5.56B, after growing 32% in Q4.

Eric Jhonsa
Eric Jhonsa

Editor

Headcount rose 33% Y/Y to 840,400, a major pickup from Q4's 23% growth. Look for Q2 to see strong Y/Y growth as well.

Eric Jhonsa
Eric Jhonsa

Editor

Third-party seller services revenue (it features things such as commissions and fulfillment service fees) rose 30% to $14.48B, matching Q4's growth rate.

Eric Jhonsa
Eric Jhonsa

Editor

Online Stores (direct e-commerce) revenue rose 24% to $36.65B. That's a major acceleration from Q4's 15% growth.

This in turn helped Amazon's paid unit sales growth accelerate to 32% from Q4's 22%.

Eric Jhonsa
Eric Jhonsa

Editor

Jeff Bezos: "Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe."

Eric Jhonsa
Eric Jhonsa

Editor

AWS revenue rose 33% to $10.22B, slightly missing a $10.33B consensus.

Eric Jhonsa
Eric Jhonsa

Editor

International segment revenue rose 18% to $19.11B, nearly in-line with consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Fueling the Q1 revenue beat: North American segment revenue rose 29% Y/Y to $46.13B, beating a $44.32B consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon is now down 5% after hours. The top-line numbers are solid, but (as previously noted) expectations were high.

Eric Jhonsa
Eric Jhonsa

Editor

Q2 op. income guidance is at negative $1.5B to positive $1.5B, below a $3.8B consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Revenue rose 26% Y/Y in Q1, and the Q2 guidance implies 18% to 28% Y/Y growth, with a 0.7% forex hit.

Eric Jhonsa
Eric Jhonsa

Editor

Shares are down 1.8% after hours.

Eric Jhonsa
Eric Jhonsa

Editor

For Q2, Amazon expects revenue of $75B-$81B vs. a $77.94B consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Results are out. Revenue of $75.45B beats a $73.69B consensus. GAAP EPS of $5.01 misses a $6.23 consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon is closing up 4%. Results should be out any minute.


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