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 US$201 million, or 44 cents a share, down from US$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 4200 employees in the quarter. Operating expenses surged to US$9.5 billion, up from US$6.7 billion a year ago.
Amazon's first quarter revenue was US$9.86 billion, up 38 per cent from a year ago. That tally was well ahead of the $9.53 billion that 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 US$8.85 billion to US$9.65 billion. Operating income is expected to be US$95 million to US$245 million, down from a year ago. Wall Street was expecting operating income of US$356.4 million.
On a conference call, expenses were the main topic. CFO Tom Szkutak claimed that:
- The increase in capital expenditures reflects additional investments in support of continued business growth, including investments in technology infrastructure such as Amazon Web Services, capacity to support their fulfilment operations and investments in corporate office space.
- They are adding nine fulfilment centres this year, as announced earlier. With the growth rates they've been seeing, they expect to have more than those nine this year. This is being seen in Q1, and it will also be reflected in the Q2 guidance.
- If you look at the growth year-over-year of that CapEx, approximately 80 per cent of that is due to pure capacity in terms of fulfilment; it's capacity from an infrastructure standpoint to serve retail business as well as AWS. Another 10 per cent to 12 per cent is associated with corporate office space, and the remainder is a number of small items. So, again, the vast majority — approximately 80 per cent — is due to capacity, both infrastructure and their operations capacity.
By the numbers:
- Amazon ended the first quarter with US$3.77 billion in cash;
- expenses surged compared to a year ago;
- North American sales in the first quarter were US$5.46 billion, up 45 per cent from US$3.78 billion a year ago. International revenue was US$4.39 billion, up 31 per cent from $US3.35 billion a year ago;
- other revenue, which is dominated by Amazon Web Services, was US$311 million in the first quarter, up from US$188 million a year ago. Media revenue was US$3.96 billion, up from US$3.43 billion a year ago. Electronics and general merchandise revenue was US$5.58 billion, up from US$3.51 billion; and
- Amazon ended the first quarter with 37,900 employees, up from 33,700 in the fourth quarter.