Amazon Q2 Earnings Live Blog

Eric Jhonsa

Amazon AMZN didn't disappoint in its second quarter earnings on Thursday reporting revenue of $88.91 billion, compared to an $81.45 billion consensus, while GAAP EPS of $10.30 crushed a $1.48 consensus.

Shares were up close to 7% in after-hours trading following the report. 

TheStreet's tech columnist, Eric Jhonsa, is analyzing the company's earnings report, as well as the call with analysts that's scheduled to begin at 5:30 p.m. ET.

Comments (65)
No. 1-50
Eric Jhonsa
Eric Jhonsa

Editor

Amazon's call has ended. Shares are up 5.6% after hours to $3,223.75 after Amazon beat its Q2 revenue consensus by more than $7B and its EPS consensus by more than $8.00, while reporting revenue growth accelerated to 40% from Q1's 26%.

The company also guided for 24%-33% Q3 sales growth (above consensus, in spite of Amazon's history of guiding conservatively) and stated on its call that it plans to add significant fulfillment capacity during the second half of 2020.

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Question about gross margin, and one about 1-day shipping.

Olsavsky: We're very focused on employee safety, which impacts shipping times. We're also focused on expanding capacity. The % of orders delivered in 1 day is gradually improving, though not back to pre-COVID levels.

Regarding gross margin, he notes there are a variety of puts and takes. Mentions that higher grocery sales are a GM headwind. Says the 1-day shipping investments had much to do with Amazon's Y/Y GM decline.

Eric Jhonsa
Eric Jhonsa

Editor

A question about a rival noting growth has slowed in some regions that are opening up, such as Europe. And one about the Zoox acquisition.

Olsavsky: We're still seeing very strong demand. Seeing some deceleration in the U.K. after very strong Q2 growth, but demand overall remains good.

Fildes: We're excited about the Zoox acquistion. They've created innovative self-driving technology, with a focus on the passenger. We look forward to working with them.

Eric Jhonsa
Eric Jhonsa

Editor

A question about AWS revenue growth (slowed to 29% in Q2 from 33% in Q1) and backlog growth.

Olsavsky: AWS backlog rose 65% Y/Y. Average contract length is over 3 years. Contract activity remains strong. It really boils down to short-term vs. long-term incentives for customers. Some customers are looking to cut costs right now.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how international Prime usage has grown in recent months.

Olsavsky: We saw 41% FX-neutral International growth in Q2. Trends remain strong in Q3. Prime is a big driver for international growth. International and U.S. Prime trends look similar.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how much COVID has shifted the e-commerce adoption curve, and one about IT spending trends and their impact on AWS.

Olsavsky: Companies are working hard to cut expenses, particularly in industries such as hospitality and travel. That impacts AWS some. But we're also seeing a lot of companies wishing they'd invested more in the cloud, as they realize their on-premise infrastructure isn't that flexible. We're seeing cloud migration plans accelerate, though they'll take time to implement. Also seeing growing AWS usage in areas such as video, gaming, etc.

Regarding e-commerce, he reiterates demand remains elevated. Says Amazon will have to see how the demand curve looks going forward. Also notes Amazon is seeing good ordering rates among new Prime customers.

Eric Jhonsa
Eric Jhonsa

Editor

Question about areas of investment that may have been pushed out in 2020 due to COVID. And one about International sales (+38% Y/Y in Q2) and their long-term profitability.

Olsavsky: International was profitable in Q2, thanks largely to sales growth. We accelerated adoption of Prime benefits in markets where we're well-established. At the same time, we're investing a lot in places like India, the Middle East, Australia, etc. Our international fixed costs "were leveraged to the hilt" as demand rose. We had a very strong quarter in the U.K.. We perhaps got a "glimpse of the demand curve" in the future for international markets.

Also notes that (like peers) Amazon has seen video production efforts delayed, which reduces near-term spending. But adds "the list is short" for the number of things Amazon is slowing spending on.

Eric Jhonsa
Eric Jhonsa

Editor

Question about when Amazon "will get back to par" in terms of 1-day deliveries. Another question about whether Jeff Bezos is (in light of longstanding willingness to sacrifice near-term profits for future growth) happy about how profitable Amazon is getting, and where Amazon might want to step up investments.

Olsavsky: We don't know when we'll get back to par, but gradually making progress. Q2 revenue was above Q4 of last year, which is unheard of. We want to keep employees safe. As we move into Q3, we need to build inventory more and expand capacity.

Also notes Amazon's marketing spend fell Q/Q in Q2, which boosted EPS, and that travel and eating costs also fell. Says Amazon is always looking for new investments that make sense, and that a lot of the near-term spending is operational activities.

Fildes highlights Amazon's grocery and streaming hours growth, and says the company feels it can do more there. Also notes investments in India, including efforts to "digitize" Indian retail sellers.

Eric Jhonsa
Eric Jhonsa

Editor

First question is about what kind of growth Amazon has seen in June/July, and to what extent (following efforts to prioritize shipments of essentials) shipments are normalizing.

Olsavsky: We started to normalize our channel mix in late April and early May. Both FBA (Amazon fulfillment) and MFN (sellers handling their own fulfillment) activity remains high. Demand "remains super high." Still very strong demand for groceries. But the sales mix is "starting to look a little more normal."

Adds that the % of orders delivered in 1 or 2 days is improving, but are still below pre-COVID level.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky's remarks about elevated spending haven't affected Amazon's stock: Shares remain up about 5% after hours.

Eric Jhonsa
Eric Jhonsa

Editor

The Q&A session is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We expanded fulfillment square footage by 15% last year. We expect to grow it by about 50% this year, with much of this new capacity coming online in Q3 and Q4.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: COVID costs will be lower in Q3 with the help of better cost efficiency.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding AWS, he says usage remains strong, but that growth varies across industries in the current environment.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We'll be adding significant fulfillment and transportation capacity during 2H20.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We saw improved Q/Q growth in the number of active sellers.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We continued seeing high Prime member engagement throughout the quarter. The Prime member growth rate accelerated, and video viewing hours more than doubled annually.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We experienced "productivity headwinds" at our facilities in Q2 due to COVID safety measures and efforts to onboard/train new employees.

Eric Jhonsa
Eric Jhonsa

Editor

He starts by thanking Amazon employees and sellers. Notes Amazon saw demand remain elevated during Q2. Groceries and consumable demand remained elevated after rising sharply in March, while demand picked up for other products.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky is now talking.

Eric Jhonsa
Eric Jhonsa

Editor

As usual, Amazon's call features CFO Brian Olsavsky and IR chief Dave Fildes. Fildes is going over the safe-harbor statement.

Eric Jhonsa
Eric Jhonsa

Editor

And it's starting.

Eric Jhonsa
Eric Jhonsa

Editor

The call should be starting any minute.

Eric Jhonsa
Eric Jhonsa

Editor

Here's the webcast link, for those wanting to tune in.

Eric Jhonsa
Eric Jhonsa

Editor

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

Eric Jhonsa
Eric Jhonsa

Editor

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

In spite of high expectations, shares are up 4.9% after hours to $3,200 after Amazon soundly beat Q2 estimates (particularly on EPS) on the back of 40% Y/Y revenue growth and issued above-consensus Q3 sales guidance.

Eric Jhonsa
Eric Jhonsa

Editor

Also, one of the bullets highlights AWS' relationship with Zoom, while declaring that Zoom "has long utilized AWS to host a significant portion of its network."

That might be a subtle shot at Oracle, which has been trumpeting a recent cloud infrastructure deal with Zoom.

Eric Jhonsa
Eric Jhonsa

Editor

As usual, Amazon's earnings release contains dozens of bullet points highlighting various quarterly events. One notable disclosure within them: Amazon says that more than 11,000 Indian local shop owners have enrolled in a recently-launched program to help such stores drive online sales.

Eric Jhonsa
Eric Jhonsa

Editor

One soft spot in Amazon's report: Physical Stores revenue (dominated by Whole Foods) fell 13% Y/Y to $3.77B.

It's worth noting here that Whole Foods' online pickup and delivery sales aren't counted as Physical Stores revenue. Rather, they're counted as Online Stores revenue.

Eric Jhonsa
Eric Jhonsa

Editor

With Amazon's stock soaring to new highs, stock comp came in at $2.6B, up from $1.97B a year ago. The diluted share count rose by 6M Y/Y to 509M.

Eric Jhonsa
Eric Jhonsa

Editor

The unearned revenue balance, much of which consists of Prime fees and AWS revenue that Amazon hasn't yet recognized, ended Q2 at $9B, roughly flat sequentially.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon ended Q2 with $68.4B in cash and marketable securities, and $33.1B in long-term debt.

Eric Jhonsa
Eric Jhonsa

Editor

Forex swings had a modest impact on Amazon's top line. International segment growth was 41% in constant currency vs. 38% in dollars, and total revenue growth was 41% in constant currency vs. 40% in dollars.

For Q3, Amazon says its guidance assumes just a 0.2% forex hit.

Eric Jhonsa
Eric Jhonsa

Editor

After backing out proceeds from property/equipment sales, Amazon's direct spending on property and equipment, which is driven by warehouse and logistics investments, soared to $6.62B from just $2.64B a year earlier.

On the other hand, its spending on property and equipment via finance leases, which tends to be driven by AWS capex, fell to $3.16B from $3.31B a year earlier.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's Q2 opex growth:

Fulfillment +49% Y/Y to $13.81B
Tech/content +15% to $10.39B
Marketing +1% to $4.35B
G&A +24% to $1.58B

Marketing spending growth, which likely benefited from lower ad prices, decelerated sharply relative to Q1.

Eric Jhonsa
Eric Jhonsa

Editor

With Amazon, Apple and Facebook all up strongly post-earnings (Alphabet is down slightly), QQQ is up 1.6% in after-hours trading.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's GAAP gross margin was 40.8%. That's down from a year-ago level of 42.8% (high shipping expenses and strong Online Stores growth are headwinds), but a little better than expected.

Eric Jhonsa
Eric Jhonsa

Editor

Shipping expenses rose 68% annually to $13.65B. Massive volume growth, COVID-related expenses and Amazon's efforts (begun last year) to make 1-day shipping the norm for Prime all presumably played roles here.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon says its online grocery sales tripled annually in Q2, and that it increased grocery delivery capacity by 160% to help deal with high demand in recent months.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's paid unit sales growth accelerated to 57% from Q1's 32%. 53% of unit sales were from third-party sellers.

Eric Jhonsa
Eric Jhonsa

Editor

Subscription services revenue (driven by Prime membership fees and to an extent content subscriptions) rose 29% to $6.02B, after having grown 28% in Q1.

"Other" revenue, which is dominated by ad sales, grew 41% to $4.22B, after having grown 44% in Q1.

Eric Jhonsa
Eric Jhonsa

Editor

Shares are now up 5.6% after hours to $3,223.99. The all-time high (set earlier in July) is $3,344.29.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon also benefited from $378M worth of "non-operating income."

Eric Jhonsa
Eric Jhonsa

Editor

Contributing to Amazon's big EPS beat: North American segment op. income rose 37% Y/Y to $2.14B in spite of major COVID-related expenses.

Also, AWS op. income grew 58% to $3.36B. And International swung from a $601M op. loss to a $345M op. profit.

Eric Jhonsa
Eric Jhonsa

Editor

Trailing 12-month free cash flow (exc. leasing and financing expenses) rose to $19.4B from $11.7B at the end of Q1.

Eric Jhonsa
Eric Jhonsa

Editor

Headcount rose 4% Q/Q and 34% Y/Y to 876,800.

Eric Jhonsa
Eric Jhonsa

Editor

Online stores (direct e-commerce) revenue rose 48% Y/Y to $45.9B, a major improvement from Q1's 24% growth.

Third-party seller services revenue rose 52% to $18.2B, after having grown 30% in Q1.

Eric Jhonsa
Eric Jhonsa

Editor

North American segment revenue rose 43% Y/Y to $55.44B, beating a $50.43B consensus.

International segment revenue rose 38% to $22.67B, beating a $19.67B consensus.

AWS revenue rose 29% to $10.81B, falling short of an $11.02B consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Revenue rose 40% Y/Y in Q2, a major acceleration from Q1's 26% growth. Q3 guidance, which (given Amazon's guidance history) might be conservative, implies 24%-33% growth.


Earnings

FEATURED
COMMUNITY