Amazon Earnings Preview
Amazon Earnings Preview: 5 Things to Watch
While the stock has pulled back considerably since its autumn peak, shares of Amazon are still 28.9% higher than they were on April 15, 2018. That’s a strong performance, as the S&P 500 has returned 11.6% over the last 12 months.
Here’s what to watch when Amazon reports.
For Q1, Amazon expects operating income of $2.3 billion to $3.3 billion, representing growth of 21% to 74% year over year. For context, operating income growth for the previous four quarters was as follows: 78% (Q4), 966% (Q3), 378% (Q2), and 92% (Q1). For 2018 overall, operating income increased 203% — in other words, it tripled.
For greater context, here are the company’s year-over-year revenue and earnings growth results for the previous four quarters:
Q4: Revenue and adjusted EPS rose 20% and 180%, respectively.
Q3: Revenue and EPS jumped 29% and 1,006%, respectively.
Q2: Revenue and EPS soared 39% and 1,168%, respectively.
Q1: Revenue and EPS surged 43% and 121%, respectively.
According to the chart ,Amazon Web Services’ growth and cash flows has better than ever.
The company’s other big financial story last year was the continued impressive growth of AWS. In 2018, the cloud service’s revenue jumped 46.9% to $25.66 billion, and its operating income rocketed 68.5% to $7.30 billion.
The segment’s operating margin (operating income divided by revenue) expanded to 28.4% last year, from 24.8% in 2017. On a quarterly basis, operating margin was 29.3% in Q4, 31.1% in Q3, 26.9% in Q2, and 25.7% in Q1 2018. So sequentially, this metric rose through Q3, but dipped a bit in Q4. One quarter, however, doesn’t make a trend, since Amazon’s spending on growth initiatives can be somewhat lumpy.
Last quarter, operating cash flow rose 67% year over year to $30.7 billion for the trailing 12 months. Free cash flow (FCF) more than doubled to $19.4 billion, from $8.3 billion.
For companies such as Amazon that invest heavily for growth, operating income is the better cash flow metric to watch. Moreover, it’s often a better metric to gauge a company’s financial performance than are operating income and net income, or “earnings,” as these are merely accounting measures.