Amazon 2Q numbers

Last night after the market closed Amazon released their second quarter results. The stock in after hours trade is up 17% which gives Amazon a bigger market cap than Walmart! Walmart has revenues of $486 billion compared to Amazon with revenues of $89 billion. South Africa has a GDP of around $350 billion. This article gives a good comparison of the two companies - Amazon is now bigger than Walmart.

Why the big move up? It is because Amazon made a profit this quarter of $92 million or 19 cents a share, where analysts were expecting a loss of 14 cents a share. Amazons profit number has never been the core focus of results due to them ploughing all the money that they make back into the business with the result that some quarters they make a small profit or a small loss. Given the speed that the internet is changing the world, it is very necessary that they reinvest all the profits to put space between them and their competitors. They are spending money on building their distribution network which allows them to deliver parcels quicker and cheaper than their competitors which at the end of the day is all the consumer wants. In some parts of the US you can get your delivery in a couple of hours, in 9 cities you can get your delivery within an hour! The only company that I can see having a big enough balance sheet to be able to properly compete with Amazon is Walmart. Last year Walmart only had online sales of $12.2 billion so they have big catchup to do to be in the same league as Amazon.

Onto the numbers: Revenue is up 20% to $23.19 billion (up 27% without the negative currency impact); North American sales up 25% to $13.8 billion. Third quarter guidance is for growth of between 13% and 24% to revenue of between $23.3 and $25.5 billion. The service that most people forget Amazon has is their Amazon Web Services (AWS) business which provides cloud storage and server farms. This business is one of their main profit drivers and provides the funding for the rest of the business. AWS had revenue growth of 81.5% to $1.82 billion and they managed to grow margins in the division. Don't forget that Amazon also has a streaming, on demand TV service (similar to Netflix). Their flagship show is called Transparent and received 11 Emmy nominations.

Jeff Bezos's goal for Amazon is to turn it into the "everything store", a one stop shop for consumers. Given that they started out only selling books 20 years ago, he is well on his way to doing that. The market sees this company as the future with its market cap being bigger than the 'old' brick and mortar business of Walmart. We still like this stock, and if you are prepared for a bumpy ride, then buy.