In particular, its Third Party/Fulfillment by Amazon (FBA) business is gaining momentum and growing at double digit rates. In 1Q13, Amazon’s service sales were $2.8 billion, and its Other Revenues item, including AWS, advertising and credit cards, stood at roughly $800 million. As a result, Amazon’s revenues from the third party segment are approximately $2 billion, which is a sizable increase from $1.4 billion in 1Q12. And this business should gain more momentum as more merchants get into Amazon’s platform.
In addition, Amazon has been making big investments in its media and entertainment business to drive up its subscription revenues from Amazon Prime. Amazon has been trying to compete with the Internet streaming giant Netflix, Inc. (NASDAQ:NFLX) and gain more subscribers to watch TV and movie content on Kindles and other devices. Amazon has roughly 8-10 million subscribers for Prime in the U.S. hasn’t gained much traction in adding users, and is substantially behind Netflix, Inc. (NASDAQ:NFLX) which has 29.8 million users in the U.S. alone.
Amazon’s large investments to add more video content including originals should reduce the churn for Amazon’s subscriptions revenue. The company gets a lot of tailwind from Prime subscribers who engage in a lot of cross-shopping on Amazon.com and drive merchandise volume. Also, Amazon’s Web services is getting more users and cutting down prices to gain market share and monetize Amazon’s back-end infrastructure.
Q2 Guidance and Consensus
Management’s guidance range for revenues came in at $14.5-$16.2 billion, which points to a Y/Y growth rate of 13%-26%. The company’s operating income guidance was rather weak, as the company is expecting a loss of $340 million to a marginal profit of $10 million. However, the sell-side is pretty optimistic about Amazon and projecting revenue estimates of $15.74 billion and a consensus EPS of $0.06. Amazon is trading at rich multiples and coupled with the company’s customary wide guidance range, the stock can react to an earnings miss or surprise.
The Takeaway
Amazon continues to invest heavily in its numerous operating segments to gain market share. The company is adding more fulfillment centers, upgrading its service in the cloud, expanding into newer segments, selling more tablets etc. The company has a large number of growth drivers, and some of these newer revenue streams have much a higher profit margin, which enhances the valuation case for Amazon in the future as well.
The article Amazon Earnings: Will the Growth Story Continue? originally appeared on Fool.com.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, and Netflix. The Motley Fool owns shares of Amazon.com, eBay, and Netflix. Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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