Amazon Q1 - Record Profits

On Thursday night Amazon released their Q1 earnings. The numbers looked good. Operating cash flow was up 89% to $34.4bn. This is an important number for a company that is notoriously non-profitable because of its' high investment rate. Sales for the quarter increased 17% to $59.7bn, Net income more than doubled to a record $3.6bn or $7.09 a share. Revenues were in line with expectations but profits comfortably beat.

For the first time in a while, spending actually came in below expectations hence the big profit beat. Don't get used that, they plan on investing $800 million to make one-day free shipping the standard for prime members. The company has over 100 million prime members, who are by far their biggest spenders, so keeping them happy as well as enticing new members is money well spent.

Cloud (AWS) again blew the lights out. Sales were up 42% to $7.7bn which is now 12.9% of total sales but contributed half of operating income. Here is an interesting breakdown of Amazon's revenues and profits.



As you can see, the more mature online retail business in North America is now profitable. In fact, profits in that region doubled. This is a good sign of things to come. The international business is still loss making. Unfortunately, the Indian government has made it difficult for Amazon as it implemented laws that favour local operators. Amazon has adjusted their strategy to align themselves with the new laws. Don't forget, from Jeff Bezos' latest letter to shareholders, 58% of sales on Amazon platforms is from third party retailers. If Amazon can position themselves to allow Indian entrepreneurs to thrive, maybe the government will be more supportive?

Guidance for the next quarter was in line with expectations. The share was up 2.5% on Friday, around 5% away from the $1 trillion mark. We are still very bullish on this stock. They have many fingers in so many pies. And very often they succeed in their side ventures. We think online retail will soon become very profitable but don't expect Amazon to stop investing until they have conquered every geography available to them.