Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

Summary: Amazon's first quarter earnings fell well short of estimates as the company increased investments on infrastructure and new businesses. The company said second quarter operating income will also take a hit even as revenue growth accelerates.

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TOPICS: Amazon, Banking
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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.

Topics: Amazon, Banking

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  • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

    They have created an Android Ecosystem, they're almost finished bringing all their products to Android and how long do you think it will be until we see an android based color kindle?
    slickjim
    • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

      @Peter Perry

      Android is based on LINUX... so is the current Amazon kindle. Given the fragmented nature of Android, it doesn't behoove Amazon to suddenly transition the Kindle to Android. Not to mention that resourcewise, Android is likely a hog (memory et al) compared to the bits shipped with the Kindle. Which segues into two points. 1) The margins on the Kindle are pretty thin. Amazon isn't trying to build a tablet to compete in the general market. 2( It's about selling eBooks, the Kindle is just a vehicle for a much higher margin product. Given the Kindle's strengths - able to go for weeks without a recharge and capable of being used in direct sunlight, it does what it does very well. No need to go be a generalist and be drowned in the noise of "me too" Android tablets.
      betelgeuse68
  • It's a transition

    I anticipate an explosion in Amazon's profits.
    MSFTWorshipper
  • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

    What??? Thinking about long-term gains at the expense of short-term profits?? How un-20th-century American of Amazon. Jeff? Good work. And expect a blizzard of Kindle sales after the retail price drops under $100, along with massive e-book sales.
    mrbewildered
    • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

      @mrbewildered: Cannot be better said. Quick results for speculants shouldn't be the basis for investment plans in any serious company.
      raul62
  • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

    I applaud Amazon and any company that invests in their future. Too many companies take a short term approach and are only interested in the next quarter earnings and miss the growth opportunities because of this. I'd much rather deal with a company I think will be around for a long time than one that rides the wave and may crash, leaving their customers and investors in a bad situation.
    mystic100
    • Agreed

      @mystic100
      Completely agree. In fact, I think that the quarterly Wall St. analyst reports in order to drive stock price are the real reason bubble economies happen. They are a disaster. People know who the great companies are. Also, kudos to Amazon for hiring 4200 people in 3 months. Fantastic news.
      hoaxoner
      • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

        @hoaxoner: Managing companies to make Wall Street analysts happy has been a clear reason for ruining too many companies.
        raul62
  • RE: Amazon: We're investing, Q1 earnings be damned; 4,200 employees hired, expenses surge

    Amazon, kudos to you! In the UK, the 18th century estate owners would plant oak woods. They knew that the slow-growing oaks would not benefit them, or their children, or even their grandchildren, but in maybe a hundred years time, some of their descendants would benefit greatly. The same attitude in some more of todays businesses would definitely produce more stable and long term viable companies.
    bargeemike