One of the essential elements of stock trading and investing is analyzing earnings reporting of stocks. But you need to look beneath the surface.
Amazon's ($AMZN) second quarter results beat expectations. So, it's worth looking into the various aspects of the earnings. That's easier said than done since Amazon has businesses in wide areas. It acquired Whole Foods last year and its subscription services business is growing rapidly. Revenue from third-party services is also rising. So, merely following the headlines about earnings and revenue growth won't give the complete picture. Investors and analysts need to get deeper beneath the surface, though the company's 39% revenue growth along with its 1,168% rise in EPS (earnings per share) is nothing short of impressive.
There are some important metrics that can particularly be overlooked among the headlines, as Motley Fool's Daniel Sparks reveals.
- Amazon experienced a 12% rise in revenue from online stores. Q2 online stores' revenue makes up 51% of the total revenue of Amazon. This segment had a year over year increase of 12%, excluding currency changes. That actually continues the segment's decreasing growth rates. If you look back to the 2017 Q3, revenue from online stores rose 22% year over year. In 2017 Q4 it rose by only 17%, and in 2018 Q1 the revenue rose by just 13% when excluding currency changes. That shows a decreasing growth trend in revenue from online stores.
- Amazon's revenue from AWS (Amazon Web Services) had a year over year rise of 49%, rising up to $6.1 billion which contributes to 12% of the company's revenue. The operating income of AWS had a faster 79% rise year over year. It rose to $1.6 billion.
- Amazon has a range of subscription services, apart from AWS, including Amazon Prime, digital music, digital video, e-book, audiobook, etc. These services witnessed significant growth in Q2. In Q4 of 2017 they experienced a year-over-year growth of 47%, while in Q1 2018 there was a 56% growth. In Q2 2018 the growth rate was 55%. Revenue from these subscription services made up 6% of the total revenue, and stood at $3.4 billion.
- Amazon earned $4.31 billion in revenue from its physical stores. During the year-ago quarter, the revenue from these stores was just zero. The Whole Foods acquisition by Amazon has played a big part in the growth in revenue to $4.31 billion. In Q2, physical-stores sales had a slight rise from $4.26 billion.
- Revenue from the other segment, which primarily consists of advertising sales, had a year over year rise of 129%, topping at $2.2 billion. This is the highest rate of growth Amazon has recorded across all segments, indicating that there is massive potential here.
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