In the most recent quarter, Amazon.com, Inc. (NASDAQ:AMZN) was able to grow its revenue from $13.2 billion to $16.1 billion; that growth along with operating cash flow growth of 39% are what led investors to bid up the price of the stock post-earnings.
Earnings highlights
The company expects an extremely broad range for the second quarter. The second quarter is seasonally slow (trough period). Amazon expects that revenue will grow 26% year-over-year. This performance is extremely important as investors are buying the stock based on the merits of incremental revenue growth.
Amazon.com, Inc. (NASDAQ:AMZN) essentially reported the same income before income taxes year-over-year. With 2013 income before income taxes at $81 million and in 2012 income before income taxes at $84 million, the company’s management team throws caution to the wind as it is extremely focused on growing the top-line with total ignorance and dis-interest to the bottom line performance.
The company grew its operating cash flows from approximately $3 billion to about $4.3 billion. This implies that the company has been able to increase the total amount of revenue generated from its online retail activities. The operating cash gives information on total cash brought in, but excludes cash spent on long-term investment activities.
Amazon.com, Inc. (NASDAQ:AMZN) has increased the purchase of property and equipment by 114% year-over-year. Amazon’s web-services division is its service suite for cloud needs. Amazon’s aggressive investment into the cloud is driven by the need to open and operate data-centers. Data-center related costs include buildings, security personnel, property, servers, technicians, etc.
Amazon.com, Inc. (NASDAQ:AMZN)’s retail business is also expanding domestically and internationally. Amazon has invested aggressively into product warehouses and fulfillment centers. The growth in capital expenditures is an alarming statistic for competitors in the cloud space more so than the retail space.
As retailers are getting KO’d by Amazon’s outrageously low prices, the cloud is a heavily contested space. AT&T anticipates that the cloud will become a $210 billion industry by 2017. Competition is getting fierce in the cloud, and Amazon is putting up more money than many others in the space.
Landscape is definitely changing
International Business Machines Corp. (NYSE:IBM) is being demolished on the server side of its hardware business. The cloud allows companies to have access to servers and software through an Internet connection, and with faster Internet (Google Inc (NASDAQ:GOOG) Fiber, Verizon Communications Inc. (NYSE:VZ) FiOS) coming to the mix, the costs and benefits continue to improve. Since Internet speeds continue to get faster, the need for dedicated servers has fallen.
Dedicated servers will remain a market segment as banks can’t afford to lose sensitive data. Biotechnology firms must protect research and data from the outside world. Other companies such as brick-and-mortar retailers, front-facing websites, construction firms etc. can rely more heavily upon the cloud, and cloud software services.
International Business Machines Corp. (NYSE:IBM)’s systems and technology reported a 17% decline in revenue. The decline in revenue was somewhat offset by the 70% growth in the cloud division but unfortunately not completely.
Revenue declined in the period by 17.2%. The CEO, heavily dissatisfied with the results from systems and technology, announced that IBM would more aggressively cut costs and focus heavily on customer service and retention.
Overall, International Business Machines Corp. (NYSE:IBM)’s competitive position in the cloud should be questioned as Amazon has increased its investment into cloud-related infrastructure by 100% year-over-year. International Business Machines Corp. (NYSE:IBM) shareholders have to be cautious of Amazon’s web services as Amazon is a well-respected brand in the space. Amazon will throw piles of money in order to win a competitive advantage, and for the most part it is working.
Netflix, Inc. (NASDAQ:NFLX) shouldn’t feel that threatened by Amazon Prime. As Amazon Prime is more of a service that Amazon uses in order to win cross-selling business into its other retail products and services, it’s not very appealing to major film companies like Walt Disney, and Time Warner Inc (NYSE:TWX), which have opted to sign exclusive content rights over to Netflix, Inc. (NASDAQ:NFLX) because the online streaming company is completely dedicated to entertaining its audience. Amazon.com, Inc. (NASDAQ:AMZN), on the other hand, is offering up movie streaming in order to drum up business for its retail division.
