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Margaret Moran
Margaret Moran
Articles (351) 

Amazon Blows Away 3rd-Quarter Estimates

The tech giant has entrenched itself as an essential, despite new competition

October 29, 2020 | About:

Amazon.com Inc. (NASDAQ:AMZN) released the results for its third quarter of 2020 after the market closed on Thursday. The company blew estimates out of the water on both the earnings and revenue front as it took advantage of the Covid-19 pandemic to entrench itself as an essential service for homebound customers.

Shares gained 1.52% throughout the day to close around $3,211.01 in anticipation of the announcement before selling off some in after-hours trading following the news.

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Overview of the quarter

Sales shot up an astonishing 37% year over year to $96.1 billion, while GAAP earnings per share more than doubled to $12.37 compared to $4.23 in the year-ago quarter. Wall Street had been expecting revenue of $92.7 billion and earnings of $7.55.

Trailing 12-month operating cash flow increased 56% year over year to $55.3 billion, while trailing 12-month free cash flow reached $29.5 billion compared with last year's $23.5 billion. Operating income nearly doubled from $3.2 billion in the prior-year quarter to $6.2 billion in the third quarter of 2020.

By segment, Amazon Web Services, the company's highest-margin business, grew 29%, while advertising saw a 51% increase. Sales grew 39% in North America and 37% internationally.

The company continued its efforts to incorporate many thousands of additional small and medium-sized business under its own umbrella, which is expected to allow the businesses to grow faster with Amazon's aid while also ensuring that Amazon gets its slice of their earnings.

In terms of new international growth, Amazon is focusing on improving its reputation and making forays in India and Australia by empowering small business owners. The quarter also saw the launch of Prime in Turkey, bringing the number of countries with the service up to 20.

The very first Amazon Fresh grocery stores opened in Woodland Hills and Irvine, California, marking its entry into the traditional grocery store market. This move came almost concurrently to Walmart's (NYSE:WMT) launching of Walmart+, a same-day delivery service designed to compete with Prime.

On the earnings report, Amazon founder and CEO Jeff Bezos shared one of the many reasons behind the company's continued success – increasing its minimum wage, which has allowed it to quickly attract large numbers of employees to keep pace with its growth:

"Two years ago, we increased Amazon's minimum wage to $15 for all full-time, part-time, temporary, and seasonal employees across the U.S. and challenged other large employers to do the same. Best Buy and Target have stepped up, and we hope other large employers will also make the jump to $15. Now would be a great time… Offering jobs with industry-leading pay and great healthcare, including to entry-level and front-line employees, is even more meaningful in a time like this, and we're proud to have created over 400,000 jobs this year alone."

Looking forward

Despite the stellar growth during the third quarter, investors' eyes were more on fourth-quarter guidance, in which Amazon disappointed high expectations with its conservative outlook. Many had been hoping for higher forward-looking predictions given that Amazon's highly anticipated Prime Day took place in October.

For the next quarter, net sales are expected to be between $112.0 billion and $121.0 billion, which would represent year-over-year growth between 28% and 38%. At $1.0 billion to $4.5 billion, the range for operating income was quite wide, so it is unclear how this stacks up against the $3.9 billion reported in the fourth quarter of 2019.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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