Amazon's first quarter earnings fell well short of estimates as the company increased investments on infrastructure, employees and new businesses. The company said second quarter operating income will also take a hit even as revenue growth accelerates.
The company reported first quarter earnings of $201 million, or 44 cents a share, down from $299 million, or 66 cents a share, for the same period a year ago. The problem: Analysts were looking for 61 cents a share. Why the shortfall? For starters, Amazon hired 4,200 employees in the quarter. Operating expenses surged to $9.5 billion, up from $6.7 billion a year ago.
Amazon's first quarter revenue was $9.86 billion, up 38 percent from a year ago. That tally was well ahead of the $9.53 billion Wall Street expected.
In a statement, CEO Jeff Bezos cited Kindle with Special offers, Kindle Library Lending, Cloud Drive, Cloud Player and Prime Instant Video as wins. Bezos added that he was "excited about the long-term opportunities." Amazon is singing the same tune as Google, which is also investing heavily at the expense of profits today.
Those opportunities are killing earnings expectations today. As for the outlook, Amazon projected second quarter sales of $8.85 billion to $9.65 billion. Operating income is expected to be $95 million to $245 million, down from a year ago. Wall Street was expecting operating income of $356.4 million.
On a conference call, expenses were the main topic. CFO Tom Szkutak said:
- The increase in capital expenditures reflects additional investments in support of continued business growth, including investments in technology infrastructure, including Amazon Web Services, capacity to support our fulfillment operations and investments in corporate office space.
- We're adding nine fulfillment centers this year. Those are the ones that we've announced. With the growth rates we're seeing, you should expect, if it were to continue, you should see more than that this year as well -- more than the nine. So that's what you're seeing in the Q1. And you're also seeing that reflected in the Q2 guidance as well.
- If you look at the growth year-over-year of that CapEx, approximately 80% of that is due to pure capacity and that's capacity in terms of fulfillment; it's capacity from an infrastructure standpoint to serve retail business as well as AWS. And another 10% or 12% is associated with just corporate office space, and the remainder is a number of small items. So, again, the vast majority, approximately 80%, is due to capacity, both infrastructure and our operations capacity.
By the numbers:
- Amazon ended the first quarter with $3.77 billion in cash.
- Expenses surged compared to a year ago.
- North America sales in the first quarter were $5.46 billion, up 45 percent from $3.78 billion a year ago. International revenue was $4.39 billion, up 31 percent from $3.35 billion a year ago.
- Other revenue, which is dominated by Amazon Web Services, was $311 million in the first quarter, up from $188 million a year ago. Media revenue was $3.96 billion, up from $3.43 billion a year ago. Electronics and general merchandise revenue was $5.58 billion, up from $3.51 billion.
- Amazon ended the quarter with 37,900 employees, up from 33,700 in the fourth quarter.