Amazon (Nasdaq: AMZN) posted strong second-quarter results which topped expectations on increased online shopping due to the coronavirus. The headline-grabbing figure is that Amazon reported earnings per share of $10.30 which was significantly above expectations of $1.46. Revenue was also higher than expectations at $88.9 billion vs $81.6 billion.
Inside the Numbers
Both figures posted a strong acceleration in which the company and analysts are attributing to the pandemic. In 2019's second-quarter, Amazon reported revenue of $63.4 billion and $5.22 per share in earnings. This represents 40% revenue growth and 97% earnings growth. Going forward, investors and analysts will be watching how much of these sales and transactions will "stick" assuming that foot traffic to retail stores starts picking up. Another development is that in the first quarter sales were dominated by lower-margin, household items, while this quarter, there's a more normal mix of items between low and high-margin items. This could be an indication that confidence in the economy is returning or it could be a byproduct of the government's fiscal support.
In its previous quarter, the major headline from earnings was that Amazon was planning to spend all of its estimated second-quarter profits on its response to the coronavirus pandemic. At the time, it was expected to be $4 billion, so Amazon beat its forecast by 30%. The company said that "shareholders would have to take a backseat" for its employees and customers.
Based on these results, it's clear that shareholders are winning as well. Amazon did significantly invest in solving logistical bottlenecks, supply chain disruptions to meet the surge in demand, testing for workers implemented social distancing guidelines and hiring more workers for its delivery network. Some of this is evident as it was able to fulfill most orders for one and two-day delivery by the end of the quarter.
Due to increased demand, Amazon was hitting capacity in warehouses and processing orders that it wasn't expecting to reach until 2021 or 2022 based on its internal forecasts. Online grocery sales tripled on a year over year basis, and it increased its capacity by 160%. AWS reported $10.8 billion in revenue for the quarter which is 29% growth on a year over year basis but is a slight deceleration from 32% in the previous quarter. Amazon's ad business grew 41% and reported $4.22 billion in revenue.
Amazon's forecast also beat expectations by a significant margin. For Q3, it's expecting between $87 billion and $93 billion in sales. The lower end of its range is above analysts' median forecast.
Stock Price Impact
Historically, companies that beat earnings and guide higher see sustained gains in their stock prices. In premarket trading, the stock is 5.5% higher and expected to open at new, all-time highs.
It's been a big winner with a nearly 100% gain off the March lows. It was the first stock to make new highs in mid-April which means that investors correctly anticipated that the pandemic would be a catalyst for the company's growth.
For the month of July, the stock had been trading in a sideways range between 3,000 and 3,300, and it looks set to open at the top-end of this range.