Online retail giant Amazon.com Inc. (AMZN, Financial) said second-quarter operating incomes declined 51% year over year despite increasing net sales by 25%.
The Seattle retailer reported net sales of $38 billion during the quarter, about $7.4 billion higher than the prior-year quarter. Record sales in Echo, Fire and Kindle during the company’s third annual Prime Day contributed to overall sales growth. Echo Dot and Amazon Fire TV both were “best sellers” during Prime Day, with the latter selling record units in less than four hours.
CEO Jeff Bezos praised the company’s teams for “remaining heads down and focused on [Amazon’s] customers.” Bezos mentioned several initiatives to boost net sales in the earnings report, including the launch of Echo Show, the expansion of Amazon Channels and Amazon Fresh to Europe and the opening of three new Amazon Books stores around the world. Such initiatives, according to the CEO, present Amazon with numerous “high-quality opportunities to invest.”
Company accelerates operating expenses, aims to further increase net sales
Amazon reported $37.327 billion in operating expenses during the quarter, approximately $8.2 billion higher than the prior-year quarter. North America operating expenses increased approximately $5 billion while International operating expenses increased approximately $2.3 billion. The increase in expenses resulted in $628 million in operating income, down $657 million from a year ago.
Despite accelerating operating expenses, Amazon expects to further boost net sales during the rest of the year. During the earnings call, Chief Financial Officer Brian Olsavsky gave several perspectives on how the company “invests for the future” to analysts from various capital markets, including Goldman Sachs Group Inc. (GS, Financial), Morgan Stanley (MS, Financial), Citigroup Inc. (C, Financial), JPMorgan Chase & Co. (JPM, Financial) and UBS Group AG (UBS, Financial). Olsavsky reiterated how Amazon’s investments in fulfillment, logistics and infrastructure drove company sales growth in North America, including logistics fulfillment unit growth of 40% globally.
The CFO also mentioned that second-quarter head count increased 42% as Amazon had success hiring software engineers and advertising personnel. Olsavsky also expressed how the company is “excited to work with the team at Whole Foods Market Inc. (WFM, Financial),” a company with “the same customer values as Amazon.” Company management expects such initiatives to increase net sales between 20% and 28% during the third quarter. Amazon’s three-year revenue growth rate of 20.60% already outperforms 93% of global specialty retail companies.
Company remains significantly overvalued despite price drop
Amazon still has strong financial strength and profitability despite reporting lower operating income guidance for the third quarter. Unfortunately for investors, the company’s share price remains significantly overvalued even though it dropped $36.79 overnight on lower operating earnings.
Disclosure: The author has no position in Amazon.
