Amazon.com Inc. (AMZN, Financial) posted its second-quarter 2017 earnings on July 27, beating revenue estimates but missing on earnings. The company’s bottom line saw a steep decline for the quarter as compared with second-quarter 2016. Profits stood at $197 million versus $857 million reported in the year-ago quarter. Post the earnings miss, the company’s stocks plunged more than 3% in after-hours trading.
The raw numbers
Amazon’s quarterly revenue was nearly $38 billion, up from $24.8 billion reported in second-quarter 2016. The company’s EPS stood at 40 cents, which was far below analysts' estimates of $1.42 a share. The company’s total operating expense for the quarter skyrocketed 28% year over year to $37.3 billion. The company had an operating margin of 1.7%. Operating profit came in at $628 million versus $1.3 billion in the year-ago quarter.
At the end of the second quarter, the company’s balance of cash, cash equivalents and marketable securities stood at almost $21.45 billion, marginally down from the year-ago quarter. Amazon generated $3.8 billion of cash from operations. The company used $2.5 billion for capital expenditures on fixed assets and $633 million for acquisitions.
Segment results
Of the company's total sales, North America constituted 59%, which indicates 26.6% year-over-year growth. Operating income was $436 million. The international market accounted for 30% of sales, up 16.7% year over year. In contrast, this market posted an operating loss of $734 million. Amazon Web Service (AWS) continues to be the powerhouse of the company as sales grew 42% for the quarter and produced an operating income of $916 million.
Effective steps
A few months ago, the company came up with a new device, called Echo Show, which would consist of a video screen. The prime feature of this device is it connects with the Alexa voice service to provide and play music, remit and receive messages, make calls and provides other essential information. Amazon aims to build an ecosystem with Alexa to compete with Apple's (AAPL, Financial) Siri and Microsoft's (MSFT, Financial) Cortana. The company has been enabling Alexa with a variety of skills so it can be connected with any line of business.
In order to expand its grocery business, the company announced it plans to buy organic supermarket chain Whole Foods Market Inc. (WFM, Financial) for $13.7 billion in June. The deal shows the company is pushing into the physical retail space in order to more effectively compete in the grocery segment in an attempt to gain market share from Wal-Mart (WMT, Financial) and other supermarket chains.
Future outlook
Amazon delivered disappointing second-quarter results with increased capital expenditures, research and development costs and higher selling and marketing expenditures, which took a toll on the company’s bottom line. The company’s revenue for the third quarter is projected to be in the range of $39.25 billion to $41.75 billion and operating income (loss) to be roughly between $(400) million to $300 million. The company’s efforts for new growth initiatives, such as pushing into the grocery space via Whole Foods, should bear results in the future. The company, however, will have to find a way to manage rising costs to report better numbers in the future.
Disclosure: I do not hold any position in the stocks mentioned in this article.
