Amazon (AMZN) Q3 Earnings & Sales Beat Estimates, Up Y/Y

Zacks Equity Research
·9-min read

Amazon.com AMZN reported third-quarter 2020 earnings of $12.37 per share, beating the Zacks Consensus Estimate by 69.4%. The bottom line also improved 192.4% from the year-ago quarter and 20.1% from the previous quarter.

Net sales of $96.15 billion comfortably surpassed the Zacks Consensus Estimate of $92.92 billion and exceeded management’s guidance of $87-$93 billion. Further, the figure increased 37.4% on a year-over-year basis and 8.1% sequentially.

North America revenues (61.7% of sales) advanced 39.2% from the year-ago quarter to $59.4 billion. International revenues (26.2% of sales) climbed 37.2% year over year to $25.2 billion. Amazon Web Services (“AWS”) revenues (12.1% of sales) rose 29% year over year to $11.6 billion.

Solid demand trend across several product categories coupled with the coronavirus pandemic-induced continuous surge in online shopping drove top-line growth. Most importantly, strengthening momentum across online grocery shopping contributed well to the performance.

Notably, the company witnessed strong growth in online store sales, which increased 38% from the year-ago quarter.

Additionally, strengthening relationships with third-party sellers remained a major positive. In the third quarter, sales generated by these sellers rose 55% on a year-over-year basis.

Further, solid momentum across Prime members remained a tailwind.The company’s subscription services delivered robust performance during the reported quarter. Sales from these services went up 33% from the prior-year quarter.

Furthermore, strong AWS momentum and expanding smart devices portfolio remained major tailwinds.

Coming to price performance, Amazon has returned 69.3% on a year-to-date basis, outperforming the industry’s rally of 63.4%.

However, shares of the company have declined1.6% in the pre-market trading. This can be attributed to escalating costs related to the expansion of delivery infrastructure, and investments in jobs and employees required to address the coronavirus-led online shopping surge.

Nevertheless, Amazon predicts a huge jump in its holiday sales, which remains a major positive.

Further, the company’s strong global presence, growing Prime and AWS momentum, strengthening Alexa skills, expanding smart devices portfolio, and growing efforts toward gaining strong traction among small and medium businesses are likely to drive its near-term financial performance.

 

 

Retail, Music & Prime Momentum

Amazon’s aggressive retail strategies continued to benefit its third-quarter results. Expanding the fulfillment network and ultrafast delivery services contributed well.

The opening of Amazon Fresh grocery store at Woodland Hills neighborhood, LA, which marks itself the first Amazon Fresh supermarket, bolstered the company’s physical retail presence.

Further, the introduction of the company’s latest contactless technology —Amazon One at two Amazon Go stores in Seattle — remained positive amidthe pandemic.

Additionally, strengthening the global presence of Project Zero, which helps in the removal of potential counterfeit products, aided in delivering enhance seller and buyer experience. Currently, it is available in 17 countries.

Furthermore, Amazon Prime momentum continued to benefit the company inthe reported quarter on the back of robustgrocery servicesand customer-oriented benefitsdespite the coronavirus-induced disruptions.

The expanding grocery delivery capacity of the company continued to be the key catalyst behindstrong online grocery sales during the third quarter.Moreover, strengthening momentum across grocery pick-up services, which are now available at all Whole Foods Market stores, remained a positive.

Additionally, the introduction of a shopping experience called Luxury Stores, which offers various luxury fashion and beauty brands to Prime members, remained noteworthy.

Also, expanding original content and overall content portfolio on Prime Video accelerated the Prime engagement further. Notably, the number of Prime Video streamers grew above 80% year over year globally.

In comparison with the year-ago quarter, Prime Video watching hours of international members more than doubled in the reported quarter.

We note that Prime Video premiered its original series namely Season 2 of The Boys, Breathe into the Shadows, Bandish Bandits, Peep Time, Pan y Circo and All or Nothing: Tottenham Hotspur during the reported quarter, which not only expanded its content portfolio but also bolstered its country-wise content library.

Apart from these, Amazon continued to bolster the global footprint of the Prime program in the third quarter. The launch of Amazon Prime in Turkey in the third quarter remained noteworthy. The move increased the number of countries with Prime availability to 20.

Further, the Prime Day event in India in the reported quarter led to strong growth in Prime membership in the country.

Also, the launch of Prime Gaming boosted the company’s gaming industry presence.

Further, the unveiling of podcasts for customers in the United States, the U.K., Germany and Japan aided Amazon Music’s momentum in the reported quarter.

Amazon.com, Inc. Price, Consensus and EPS Surprise

 

Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote

Expanding AWS Portfolio: A Key Catalyst

AWS, whichwitnessed significant improvement in the topline, continued to gain strong customer momentum in the coronavirus-hit third quarter, courtesy of its highly reliable services portfolio.

During the reported quarter, AWS announced the general availability of Amazon Braket, which is a fully-managed service that allows customers to test and troubleshoot quantum algorithms on quantum computer simulators.

Further, AWS made io2 for Amazon Elastic Block Store and Amazon Timestream generally available. Also, AWS Wavelength on Verizon’s 5G network was recently made generally available for users in Boston and San Francisco Bay Area.

On the heels of expanding services portfolio, AWS experiencedstrong growth in its clientele with the addition of Indeed, Global Payments, Moderna, Arcelik, Weta Digital and Jack in the Box.

Further, Amazon’s strengthening relationship with The National Football League on the back of six new advanced stats for the 2020 season powered by AWS remained noteworthy.

Alexa & Expanding Smart Devices Offering

Amazon continued to enhance the skills and features of Alexainthe reported quarter. Advanced features that include Guard Plus and Care Hub along with AI advancements and expanding Alexa Calling and Messaging capabilities remained positives.

Additionally, robust smart home features of Alexa led to increased connections with smart home device. Notably, the number of such devices connected with Alexa by customers exceeded 100 million.

Moreover, the strengthening of smart device offerings remained positive. The launch of the all-new Echo, Echo Dot, Echo Dot with clock, Echo Dot Kids Edition, and Echo Show 10 strengthened its smart speaker offerings.

Further, Amazon rolled out the next-generation Fire TV Stick and Fire TV Stick Lite, which is an all-new device. Furthermore, Amazon made its foray into the promising fitness tracker and wearable market by launching Amazon Halo and Amazon Halo Band, the fitness tracking service and wearable, respectively.

Also, the company expanded its Wi-Fi device offerings by unveiling the mesh Wi-Fi systems namely eero Pro 6 and eero 6.

Also, it expanded its smart home security camera offerings by introducing Blink Outdoor and Blink Indoor wireless cameras.

Quarter Details

Product sales (54.9% of sales) increased 32.8% year over year to $52.8 billion. Service sales (45.1% of sales) rose 43.3% from the year-ago quarter to $43.4 billion.

Operating expenses were $89.9 billion, up 34.6% from the year-ago quarter. As a percentage of revenues, the figure contracted 190 bps on a year-over-year basis to 93.6%.

Cost of sales, fulfillment, technology & content, marketing, general & administrative, and other operating expenses increased 38.3%, 44.6%, 19.3%, 14.3%, 23.7% and 12.7% to $57.1 billion, $14.7 billion, $10.9 billion, $5.4 billion, $1.7 billion and $62 million, respectively, on a year-over-year basis.

Operating income increased 96.2% from the year-ago quarter to $6.2 billion. Further, the operating margin expanded 190 bps from the year-ago quarter to 6.4%.

Operating income for AWS was $3.5 billion, up 56% year over year.Further, the same for North America improved76% from the prior-year quarter to $2.2 billion.

Further, theInternational segment reported anoperating income of $407 million against a loss of $386 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash and cash equivalents were $29.9 billion compared with $37.5billion as of Jun 30, 2020. Further, marketable securities totaled $38.5 billion at the end of the third quarter, up from $33.9billion at the end of the second quarter.

Long-term debt was $32.9 billion in the reported quarter compared with $33.1 billion in the previous quarter.

Further, the company generated $11.9 billion of cash from operation in the third quarter, which was down from $20.6 billion in the prior quarter.

Guidance

For fourth-quarter 2020, Amazon expects net sales between $112 billion and $121 billion. The figure is anticipated to improve28-38% on a year-over-year basis. The Zacks Consensus Estimate for net sales is pegged at $112.53 billion.

Management projects a favorable foreign exchange impact of 90 bps.

Proceeds from operational activities are likely to range from operating income of $1 billion to $4.5 billion. Notably, the company reported an operating income of $3.2 billion in the year-ago quarter.

This guidance is inclusive of more than $4-billion costs related to COVID-19.

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

Alibaba Group Holding Limited BABA, JD.com, Inc. JD and Revolve Group, Inc. RVLV are some better-ranked stocks in the broader Retail-Wholesale sector, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term earnings growth rate for Alibaba, JD.com and Revolve is pegged at 19.76%, 49.73% and 17.3%, respectively.

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