Expert Investor
Author: Mauricio Carrillo
Senior Reporter
Mauricio Carrillo

Amazon Mixed Earnings And Plans to Spend All Q2 Revenue on COVID Topics

Amazon is trading negative on Friday after posting a mixed earnings report for the first quarter of 2020 after the bell on Thursday. "If you're a shareowner in Amazon, you may want to take a seat," the company said in a press release just before announcing that all Q2 profits will be reserved to the coronavirus response.

We all know it is an atypical movement for a global corporate, but given the times we are living now and the success that Amazon has shown in its business in the COVID age, it all makes sense.

In the last weeks, Amazon saw a jump in users, clients and services at a level that the company had to cut off some of its sales engines to maintain a certain level of business-practices quality.

Besides, it is an excellent corporate move after last month’s polemic actions taken from some workers that complained about Amazon's lack of safety for their workers.

Jeff Bezos, Amazon founder and CEO said in the press note:

From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon's business as never before, but it's also the hardest time we've ever faced.

To know more about what Amazon is doing for its employees and customers, you can read the whole press release, "Amazon.com Announces First Quarter Results”.

Amazon Misses on Earnings But Beats on Revenues

Seattle-based multinational technology company Amazon reported a Q1 GAAP EPS of $5.01 per share, a miss by $1.10 regarding market expectations. On the other side, Amazon had revenue of $75.5 billion, an increase of 26.5% from the same period in 2019, and a beat of $1.41 billion from expectations.

Amazon Web Services had a lot to do with that increase of revenues as it reported more than $10 billion in revenue in the Q1 2020, a growth of 33% on an annualized basis.

According to the press release, here the key metrics:

  • Operating cash flow increased 16% to $39.7 billion for the last twelve months, compared with $34.4 billion for the same metric ending March 31, 2019.
  • Free cash flow increased to $24.3 billion for the trailing twelve months, compared with $23.0 billion for the trailing twelve months ending March 31, 2019.
  • Net sales increased by 26% to $75.5 billion in the first quarter, compared with $59.7 billion in Q1 2019.
  • Operating income decreased to $4.0 billion in the first quarter, compared with an operating income of $4.4 billion in the first-quarter of 2019.
  • Net income decreased to $2.5 billion in the first quarter, or $5.01 per diluted share, compared with net income of $3.6 billion, or $7.09 per diluted share, in the first-quarter of 2019.
  • Amazon Web Services (AWS) revenue: $10.22 billion.

For the second quarter of 2020, Amazon is expecting net sales of between $75 billion and $81 billion, which would be an annualized growth of between 18-28%.

Amazon CFO Brian Olsavsky said in an interview with CNBC that the company experienced a significant spike in grocery sales, and it witnessed a physical store sales increase of 8% year-over-year in the Q1.

He said:

It's taking longer to get things into our warehouse than out of our warehouse, it's still unclear when operations will go back to normal.

Olsavsky said:

The biggest questions we have in Q2 is more about the ability to service that demand and the products people are ordering in a full way.

AWS Reports a Record of Over $10 Billion in Quarterly Revenue

Like other cloud services in business, Amazon Web Services is experiencing a huge demand due to the stay-at-home, self-isolation, and quarantine measures all around the world following the COVID-19 pandemic.

Previously, here in Expert Investor, we reported that Microsoft saw a 775% spike in cloud demand, and Disney reported over 50 million streaming subscribers. The same is happening with Amazon Web Services.

In the last quarter, AWS experienced a 33% revenue growth on an annualized basis to $1022 billion, which was 13.5% of Amazon's total revenue.

AMZN Technical Analysis

AMZN Daily Chart

Shares of Amazon are trading lower on Friday as investors got cold feet on Thursday. The company announced a mixed earnings report, hearing that all next quarter profits would be spent on COVID related measures.

On Thursday, AMZN closed its best month ever with an outstanding rally of 26.89% in April. That took the share from sub-$2,000 prices to its all-time high at $2,475.

However, investors got disappointed after the bell following the earnings report. Currently, AMZN is trading 4.82% down on the day at $2,354.66.

Technical conditions for the unit remain pointing to the upside. MACD and chart formations are bullish; momentum is also positive, but it is starting to show some exhaustion in the trend. Overall, Amazon is performing a healthy technical condition for the upside.

Previously, Jefferies analyst, Brent Thill, highlighted an "attractive growth- adjusted valuation and upside to forward profit estimates" noting that the coronavirus-related demand surge is fueling a long-term operating income upside at high-margin businesses. Thill raised the AMZN target price from $2,300 to $2,800.

Analysts at TheStreet Quant Ratings have Amazon as a "BUY" with a target price of $2,776, while Credit Suisse has AMZN as "Outperform" with a target price of $2,760.

However, given the current market sentiment, AMZN should maintain the $2,300 level now to keep the bullish options open. Indeed, it is a crucial day for Amazon.

Meet The Author
Mauricio Carrillo
Mauricio Carrillo
Senior Reporter

Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.

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