Spectacular Quarter for Amazon

This week was marked by the big tech companies (Amazon, Facebook, Google, Apple) being grilled by the U.S. House of Representatives on accusations of operating a  monopoly. 

Curiously, their testimony came in the exact week when all of them were supposed to announce their Q2 2020 earnings.

Amazon reported yesterday after the U.S. markets closed. The stock market had a mixed performance so far this week as the big tech companies, the drivers of the rally in the last months, were expected to publish their Q2 performance.

Amazon did not disappoint. It crushed market expectations on all fronts:

  • Net Sales: $88.9 billion on expectations of $81.24 billion
  • EPS: $10.3 vs. $5.22 in Q2 2019
  • Raised forecast for Q3 net sales
  • Created over 175,000 jobs since March 2020

What Next for Amazon?

Not only did they beat expectations on all fronts, but Amazon also increased its forward guidance for the next quarter. In the words of Jeff Bezos, “this was just another highly unusual quarter, a  quarter with great financial performance”.

Ahead of Amazon’s release, analysts and commentators crunched the numbers and the company’s performance so far and compared it with the sky-high market price. The valuation did not make sense.

Nevertheless, with yesterday’s financial reports for the quarter and improved guidance moving forward, Amazon proves that there is literally no growth limit in sight.

The company is one of the major beneficiaries of the coronavirus pandemic, as people all over the world were forced to stay home due to lockdowns. Amazon used the opportunity to the max. Its operating cash flow increased 42% TTM (Trailing Twelve Months), reaching $51.2 billion and free cash flow almost doubled in the same interval.

The only thing that fell short of expectations was AWS revenues, missing the $11.02 billion consensus by delivering $10.81 billion. For a long-time the AWS (Amazon Web Services) was the growth engine for Amazon business, delivering double-digit growth constantly on a quarterly basis.

However, as the cloud services competition increased, the market share split between different participants, with names like Microsoft Azure or the Google Cloud eating a big chunk of it.

Amazon shares closed at $3,050.04 and jumped 4.4% after hours. This does not mean that Amazon will rise in today’s trading session – financial markets have a different way of reacting to positive or negative news.

What it does mean is that this is a company with a mission and an execution that keeps delivering. It remains to be seen how investors will react to Amazon literally crushing expectations.

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