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Amazon Posts Another Huge Beat: Cloud Computing Driving Growth

Amazon (AMZN) does it again, beating EPS estimates by over 50% but investors are still not impressed. AMZN has beaten EPS estimates by a considerable amount for the past 6 consecutive quarters, but only 2 of those earnings had a positive price action. Amazon's margins have been consistently improving, substantially being driven by Amazon Web Services (AWS) expansion. Read More...

Amazon AMZN does it again, beating EPS estimates by over 50% but investors are still not impressed. Earnings were released after market close yesterday posting $7.09 earnings per share and $59.7 billion in revenues representing year-over-year growth of 117% and 17% respectively. They had a bottom line of $3.6 billion making this Amazon’s most profitable quarter ever.

AMZN has beaten EPS estimates by a considerable amount for the past 6 consecutive quarters, but only 2 of those earnings had a positive price action. It would appear that estimates are consistently over conservative and investors know to expect a large positive EPS surprise. Amazon has traded up and down then back up in morning trading currently sitting at about a 1% gain for the day.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Cloud Computing” data-reactid=”13″>Cloud Computing

Amazon’s margins have been consistently improving, substantially being driven by Amazon Web Services (AWS) expansion. AWS is Amazon’s cloud computing segment which offering services ranging from simple storage to business analytics and machine learnings. AWS is Amazon’s fastest growing division and produces the largest margins. This segment has been growing at an annual rate ranging from 43% to 55% for the last 3 years and grew 41% in Q1 YoY. AWS offers the business 39% operating margin compared to the 4.2% margin that the rest of Amazon’s operations are providing. This segment already makes up about 50% of AMZN’s income and will likely continue to grow.

 

The cloud computing space is becoming increasingly competitive. The largest competitor in this space is Microsoft MSFT who brought is $3.2 billion in operating income in Q1, compared to Amazon’s $2.2 billion, representing 21% growth YoY. They have been able to achieve double digit growth numbers consistently for the prior 4 quarters and this growth isn’t likely to slow.

International Business Machines IBM cloud is also a massive competitor in this space but losing market share. They were the leading cloud computing company at the end of 2017 generating $5.5 billion that quarter but their year-over-year growth has slowed significantly to negative in their recent Q1 earnings release. They still hold the #3 stop for this space.

AWS is the fastest growing cloud service in the category right now. In Q1 they were able to lock in commitments and migrations from major businesses including Lyft and Gogo, inc who are going all-in on AWS, while the L.A. Clippers named AWS their official cloud and machine learning provider. With cloud computer and machine learning becoming a necessity for all businesses AWS is going to be Amazon’s chief profit driver in the future.

AMZN has a tremendous amount of growth priced into it, so the 61.7x forward P/E shouldn’t scare off investors. It is currently trading at a 2.2x PEG which is far below the industry average of 5.3x, meaning that its P/E multiple is much more in line with its growth outlook than competing firms. This tech powerhouse will continue to grow and expand to new markets until anti-trust laws break it up.

Amazon’s EPS estimates continue to climb with consistent beats and upward management guidance pushing AMZN to a Zacks Rank #2 (Buy).

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Other Tech Earnings This Week” data-reactid=”28″>Other Tech Earnings This Week

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="FB” data-reactid=”29″>FB

Facebook FB had a huge earnings beat after market close on Wednesday, after adjusting for the $3 billion they set aside for a potential fine by the Federal Trade Commission. Adjusted EPS was reported at $1.89 beating estimates by 14% and up year-over-year by 12%. Revenues also posted a beat and YoY growth of 26%. FB estimates that 2.1 billion people use Facebook, Instagram or WhatsApp daily, meaning that roughly 66% of humans with internet access use one of FB’s services daily. FB is up over 5% since this earnings release. With earnings and guidance continuing to improve for FB the stock currently sits at a Zacks Rank #2 (Buy).

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