- Amazon reported its Q1 2014 results on April 24th after market hours.
- The company reported revenue of $19.74 billion, which was in the higher end of its guided range and trumped analyst consensus estimate even while delivering earnings in-line with consensus.
- The trading activity off the earnings call, with the stock down 1.4% in pre-market trade, has been in stark contrast to the historical trading following revenue beats. The trading activity suggests investors are looking for more than just topline growth, maybe a greater focus on earnings is the need of the hour.
It has been yet another quarter of solid growth for the folks at Amazon (NASDAQ:AMZN). The electronics to groceries e-commerce giant announced its Q1 2014 results yesterday (April 25th) after market close. The company just concluded a quarter which featured the launch of the Fire TV streaming box and also an exclusive content deal with HBO. While the numbers have been left as hazy as ever, the deal could provide Amazon with enough ammunition to cause ripples in the video streaming industry. While the financial impact of Amazon’s latest salvo is yet to be known, a definite known is that the company reported solid numbers for the first quarter of 2014. Our Amazon Q1 2014 earnings review analyzes, in a greater detail, the latest financials from Bezos and Co.
Amazon Q1 2014 earnings review: Delivering growth yet again
The latest quarter saw Amazon register a 23% Y/Y growth in revenue bolstered by a 16% growth in revenues from North America. The revenues for the quarter at $19.7 billion were well above $19.05 billion, the midpoint of the guidance outlined in the Q4 2013 conference call. The topline growth was fuelled by traction in the EGM (electronics and general merchandise) segment (+27% Y/Y) and strength in the other revenue (+58% Y/Y), which includes revenue from Amazon web services (AWS). Let’s look at the segmental growth rates (ex-forex impact) at Amazon in Q1 2014 vis-à-vis Q1 2013.
|Q1 2013||Q1 2014|
|Overall Revenue Growth||24%||23%|
|Media Revenue Growth||10%||8%|
|EGM Revenue Growth||30%||27%|
|Other Revenue Growth||60%||58%|
The current pace of growth suggests that Amazon is far from coming to a stalling topline, as has been widely expected. Yes, we do agree that with marginal slowdown in growth becoming a constant trend at Amazon, the pressure of generating earnings will only be on the rise.
Moving on to the bottom line, Amazon reported earnings per share (EPS) in line with expectations of 23 cents per share, which was a good 27% improvement over Q1 2013. The revenue and earnings growth of Amazon is summarized in the table below.
|Q1 2013||Q1 2014||YoY Change|
|Revenue (in millions of $)||16,070||19,741||22.84%|
|EGM Revenue Growth||30%||27%|
|Earnings per Share ($)||0.18||0.23||27.78%|
The operating margin contraction was driven by a 19.1% increase in cost of goods sold, 29% increase in fulfillment expenses and 44% rise in technology and content expenses, all on a Y/Y basis. The gains from equity investments helped boost the Net Income for the quarter, therefore resulting in EPS growth inspite of operating margin contraction.
Let’s now take a look at the cash position of Amazon at the end of Q1 2014 and also the operating cash flow generated during the quarter. Amazon saw an outflow of cash due to operating activities to the tune of $2.5 billion as against an outflow of $2.37 billion in Q1 2013. The cash position at the end of Q1 was strong with a quarter ending cash and cash equivalents balance of $8.6 billion, more than sufficient to fund the operations at the current burn rate for over a year.
Actual performance v/s analyst estimates
|Revenue (in millions of $)||19,420||19,741||1.6%|
|Non-GAAP Earnings (in $)||0.23||0.23||0%|
Consensus estimate source: streetinsider.com
Amazon trumped analyst consensus estimates on revenue and reported earnings in-line with expectations. The revenue beat was marginal at 1.65%, but more importantly the company reported revenues which did not show any signs of a slowdown.
Amazon’s quarterly report card was above expectations and delivered on the one metric Amazon has historically been valued for. Yes we mean topline growth. Historic revenue beats have been followed by solid movements off the conference calls, even when earnings have been near zero or negative. For a change the stock is currently trading 1.41% down in pre-market trade (at time of writing) even when the company reported revenue beat and Y/Y revenue growth of 23%. The post earnings trade of the stock raises an important question. Is this a sign of investors beginning to look for earnings growth? We believe the time has come for Amazon to focus more on the bottom line as Amazon faces tremendous cost pressures, reflected in the disproportionate growth in operating expenses and it is only a matter of time before investors start demanding greater earnings for their significantly risky investments in Amazon’s stock. We continue to reiterate our negative outlook on Amazon, which is reflected in our current rating of the stock.
To see Amazon’s latest stock price movement, click here (NASDAQ:AMZN)