Amazon.com Inc. (AMZN, Financial) shares rose approximately 3% in extended trading on Thursday after the company recorded strong earnings growth in its second-quarter report.
The Seattle-based e-commerce company posted earnings per share of $5.07, crushing Thomson Reuters’ estimates of $2.50. In addition, net income increased significantly from the year-ago quarter to a record $2.5 billion, which also marked its third consecutive quarter of surpassing $1 billion in profits.
During the conference call, Chief Financial Officer Brian Olsavsky attributed this improvement to the growth of Amazon’s high-margin businesses, which include cloud and advertising, as well as more efficient operations at its warehouses and data centers. Growth in the third-party marketplace business was also a factor.
Although the company’s total revenue grew 39% from the prior-year quarter to $52.9 billion, it missed analyst expectations of $53.4 billon. Amazon’s North America sales increased 44% to $32.1 billion, while international sales saw a 27% increase to $14.6 billion.
Despite increased competition from Microsoft (MSFT, Financial) and Alphabet’s Google (GOOG, Financial) during the quarter, sales in the Amazon Web Services segment grew 49% to $6.1 billion, beating FactSet’s estimates by a hair.
In a statement, founder and CEO Jeff Bezos touted the success of Amazon’s voice-controlled Alexa service, saying he wants customers to be able to use it “wherever they are.”
“There are now tens of thousands of developers across more than 150 countries building new devices using the Alexa Voice Service, and the number of Alexa-enabled devices has more than tripled in the past year,” he said.
The company’s “other” revenue, which includes advertising sales, grew 132% from the prior-year quarter to $2.2 billion. This is the second quarter in a row in which the e-commerce giant has exceeded $2 billion in advertising revenue.
Outlook
Looking ahead to the third quarter, Amazon guided for revenue between $54 billion and $57.5 billion and operating income ranging from $1.4 billion to $2.4 billion. Revenue projections fell below Wall Street’s expectations of $55.6 billion to $62.2 billion.
The company noted that sales from its annual Prime Day, which occurred earlier this month, will be included in its third-quarter report.
Push into health care
In late June, Amazon announced that it is acquiring online pharmacy PillPack, officially making a move into the health care space. In response, shares of pharmacy retailers like CVS Health (CVS, Financial), Walgreens Boots Alliance (WBA, Financial) and Rite Aid (RAD, Financial) tanked.
Krista Fabregas, a retail and e-commerce analyst at FitSmallBusiness.com, said traditional drugstore chains should be concerned as the startup has “already done much of the legwork for both federal and state-specific regulations regarding pharmacy distribution,” which would make it easier for Amazon to move in and begin making improvements.
In addition, Fabregas noted that Amazon shoppers have high hopes for the pharmacy service.
“Customers expect Amazon to apply its customer-centric sales approach across pharmacy needs, including perks for Prime members,” she said. “Overall, consumers expect Amazon to allow greater access to online pharmacy management and, most importantly, lower cost.”
During the earnings call, Olsavsky said he is excited about the deal with PillPack, which is expected to close later this year.
“I think the company has a really highly differentiated customer experience, and they've done a great job getting to the size and scale that they're at today,” he said. “We think that, working together with them, we can expand on that in the future.”
Stock price
Amazon’s rally carried over into Friday morning. With a market cap of $891.92 billion, shares were trading around $1,838.15, up 1.67%.
GuruFocus estimates the stock has climbed 55% year to date.
Disclosure: No positions.
