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Amazon Announces Record 2Q Revenue, But Expenses Skyrocket

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For a few hours this week, Amazon CEO Jeff Bezos was the richest man in the world. Then Amazon released its 2Q earnings report on Thursday, July 27, and the stock price dropped nearly $50 a share — and Bezos dropped to number two, behind Bill Gates.

It might not take long before he moves back into the number one spot again. The earnings report shows two significant pieces of information. First, Amazon makes a lot of money. And second, Amazon invests a lot of money in the future of the company.

Revenue for Amazon's second quarter was $38 billion, compared to $30 billion during the same quarter in 2016, a 28% increase. Amazon says its Amazon Prime Day, held in the second quarter every year, had “tens of millions” of customers buying on just one day.

But, Amazon also invested most of that revenue in newer, faster ways to get products to customers and in hiring more employees. During its earnings report conference call, Amazon CFO Brian Orlavsky explained how much more distribution center space Amazon has acquired in the past three months. “We are going to have about 80% of our increase in square footage for fulfillment and shipping coming online in the back end of the year, so that's a major increase,” Orlavsky pointed out. That means more distribution centers placed closer to its customers, so delivery times will be cut. Amazon invested in the faster delivery times, because according to Orlavsky, “We know customers really like it. That is a service that customers love. That's not an inexpensive service, though, so we are constantly working on our cost of delivery and route densities.”

Amazon also says it has 42% more employees than this time last year. And next week, the online giant announced it is hosting a nation-wide job fair to hire 40,000-50,000 more employees.

Once the infrastructure to take and deliver orders is in place, the revenue is expected to out-pace the expenses. Then the scenario will be to watch for new opportunities for Amazon to invest. Keep in mind, Amazon reported about $14 billion in net cash. It still hasn't closed on the Whole Foods purchase, which is reportedly going to be $13.7 billion. That doesn't leave a lot remaining.

Here is the Amazon earnings report:

SEATTLE — Amazon.com, Inc. announced financial results for its second quarter ended June 30, 2017.

Operating cash flow increased 37% to $17.9 billion for the trailing twelve months, compared with $13.0 billion for the trailing twelve months ended June 30, 2016. Free cash flow increased to $9.7 billion for the trailing twelve months, compared with $7.7 billion for the trailing twelve months ended June 30, 2016. Free cash flow less lease principal repayments increased to $5.5 billion for the trailing twelve months, compared with $4.2 billion for the trailing twelve months ended June 30, 2016. Free cash flow less finance lease principal repayments and assets acquired under capital leases decreased to $1.5 billion for the trailing twelve months, compared with $2.9 billion for the trailing twelve months ended June 30, 2016.

Common shares outstanding plus shares underlying stock-based awards totaled 502 million on June 30, 2017, compared with 495 million one year ago.

Net sales increased 25% to $38.0 billion in the second quarter, compared with $30.4 billion in second quarter 2016. Excluding the $502 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 26% compared with second quarter 2016.

Operating income decreased 51% to $628 million in the second quarter, compared with operating income of $1.3 billion in second quarter 2016.

Net income was $197 million in the second quarter, or $0.40 per diluted share, compared with net income of $857 million, or $1.78 per diluted share, in second quarter 2016.

“Our teams remain heads-down and focused on customers,” said Jeff Bezos, Amazon founder and CEO. “In the last few months, we launched Echo Show (our newest Echo device with a video screen), introduced calling and messaging via Alexa on all Echo devices, debuted Inside Edge on Prime Video (the first of 18 Indian Original Series), introduced Amazon Channels in both the U.K. and Germany, launched four new Fire tablets, expanded Amazon Fresh to Germany, launched Prime Now in Singapore, launched our 25th airplane with Prime Air, hired more than 30,000 new employees, opened three new Amazon Books stores, launched more than 400 significant AWS features and services, migrated more than 7,000 databases using AWS Database Migration Service, and held our third annual Prime Day — signing up more Prime members than ever before. It's energizing to invent on behalf of customers, and we continue to see many high-quality opportunities to invest.”

Here is the full Amazon earnings report.

 

 

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