Amazon Amazes!

Amazon’s results are in, and they are impressive! Net income for the quarter doubled with a 41% rise in revenue in a slowing, hiccuping economy.

The company posted much stronger-than-expected revenue of $4.06 billion, compared with analyst expectations of $3.95 billion and revenue of $2.89 billion for the same period last year. EPS for Q2 was $0.37 per share, compared with Street predictions of $0.26 per share. This jump in revenues partially brought about the higher operating profit margins. I have always strongly believed that the company needed to expand margins to increase profitability.

Operating income rose 86% to $217 million in Q2, compared with $116 million for the same period last year. Of that, the favorable effect of foreign exchange rates account for $17 million.

Net income was $158 million, a 102% increase over the $78 million for Q2 2007. The key business areas responsible for this jump were Worldwide Media, Worldwide Electronics, and General Merchandise. Media sales grew 31% to $2.41 billion compared with $1.83 billion in Q2 2007. Electronics and General Merchandise sales grew 58% to $1.53 billion for this quarter compared with $0.97 billion in the second quarter last year. The stock closed at $70.54 on Wednesday.

North American sales were up 35% to $2.17 billion, while international sales were $1.89 billion, up 47% from the same period in 2007. Amazon is projecting 2008 revenues to be between $19.35 billion to $20.1 billion, up 30-35%. These numbers are stronger than what the company had previously projected, as I reported in an earlier post.

Another reason for Amazon’s higher-than-expected earnings could be a non-cash gain of $53 million from the sale of the company’s European DVD rental assets. Realmoney.com feels that if this gain is removed from the results, Amazon’s numbers would be in line with estimates. A large portion of these gains would also be from Amazon Prime membership fees as well as free shipping incentives to customers.

Regardless of how the gains were made, Amazon has posted strong results in what is considered the slowest quarter of the year, leading us to believe that spending on consumer goods may not have slowed down as much as previously thought. The stock is valued at around 45 times projected 2008 earnings, trading high above other Internet stocks like Google and eBay as well as other retailers with a large online presence like Wal-Mart Stores (AMT) and Best Buy (BBY).

Now, the company needs to ensure that the expanding profit margins can be made sustainable.

Disclosure: None

Comments

[LouieJunior]

The lovefest with Amazon continues! This author, and others like her, help Amazon sugarcoat its performance. Who ever heard of including a non-cash, one-time capital gain in operating income?

"Another reason for Amazon’s higher-than-expected earnings could be a non-cash gain of $53 million from the sale of the company’s European DVD rental assets." -- No kidding!

[fUny1]

Amazon Sold its DVD rental business to a company that Amazon owns a stake in( possibly majority stake?)

That is why it's a non-cash capital gain. They never received any money since the company that bought it does not have any money on their own unless Amazon gives it to them.

This is known as accounting fraud as Enron has shown us. Just like their margins, this is unsustainable.

Sramana, if you investigate this issue and unearth something, then you might have a right to be called a real journalist or at least a good financial analyst but most likely you suffer from what ails most people- ignorance that is a result of laziness.

Until you come up with something original, you're just part of the herd of cretins infesting the media in all its forms.