Did Same Day Delivery Lead Amazon’s Q2 Results Higher?

Amazon (NASDAQ:AMZN) is scheduled to report its Q2 on July 25. The company’s Q1 had come ahead of consensus expectations on revenue (+17% y-o-y) and EPS (+$2.44 per share). Going into Q2, we will be looking for updates around:

• Incremental growth from same day delivery for Prime members
• Management commentary around the $10-billion JEDI contract to be awarded by the Pentagon.
• Commentary around how Oracle’s partnership with Microsoft to enable interoperability across the Gen2 and Azure platforms could impact Amazon Web Services going forward.
• Growth in streaming, expansion across other brick and mortar formats, shift in advertising budgets from traditional online advertisers to Amazon and management perspective (if any) on potentially spinning off AWS into a separate entity.

Trefis estimates Amazon’s valuation to be $2,056 per share, which is slightly above the current market price. We capture trends in Amazon’s Earnings over recent quarters in an interactive dashboard along with our forecast for full-year 2019. You can modify any of the key drivers to visualize the impact of changes on the company’s share price estimate. Additionally, you can see more Trefis technology company data here.

A Quick Look At Amazon’s Revenues

Amazon makes money though commission on retail products, sale of public cloud subscriptions, online advertising, online content streaming and other related areas. Amazon reports its revenue (total of 232.9 billion in 2018) in three segments:

• Amazon International (2018 revenue of 65.9 billion, contributed 28.% to total revenue): Segment revenues are derived from the sale of consumer products and subscriptions globally, excluding North America.
• Amazon North America (2018 revenue of 141.4 billion, contributed 61% to total revenue): Segment revenues are derived from the sale of consumer products and subscriptions across North America.
• Amazon Web Services or AWS (2018 revenue of 25.7 billion, contributed 11% to total revenue): Segment revenues are derived from the sale of compute, storage, database, and other enterprise service offerings.

Amazon’s Revenue And Net Income Trends

• Amazon International revenue increased from $44 billion in 2016 to $65.9 billion in 2018. The increase of $21.9 billion between 2016 and 2018 implies a CAGR of 36.4%. Q1 2019 revenue grew to $35.8 billion (16.6% y-o-y). We expect Q2 revenue to grow to $37.6 billion (16.8% y-o-y) and 2019 revenue to grow to $78.8 billion (19.7% y-o-y).
• Amazon North America revenue increased from $79.8 billion in 2016 to $141.4 billion in 2018. The increase of $61.6 billion between 2016 and 2018 implies a CAGR of 49%. Q1 2019 revenue grew to $16.2 billion (8.9% y-o-y). We expect Q2 revenue to grow to $15.5 billion (5.7% y-o-y) and 2019 revenue to grow to $177.6 billion (25.7% y-o-y).
• Amazon Web Services revenue increased from $12.2 billion in 2016 to $25.7 billion in 2018. The increase of $13.4 billion between 2016 and 2018 implies a CAGR of 80.4%. Q1 2019 revenue grew to $7.7 billion (41.4% y-o-y). We expect Q2 revenue to grow to $8.6 billion (41.2% y-o-y) and 2019 revenue to grow to $33.9 billion (32.3% y-o-y).
• Amazon’s Revenues (shows key revenue components) increased from $136 billion in 2016 to $232.9 billion in 2018. The increase of $96.9 billion between 2016 and 2018 implies a CAGR of 47.5%. Q1 2019 revenue grew to $59.7 billion (17% y-o-y). We expect Q2 revenue to grow to $61.6 billion (16.6% y-o-y) and 2019 revenue to grow to $290.4 billion (24.7% y-o-y).
• Net income increased from $2.4 billion in 2016 to $10.1 billion in 2018 – indicating an improvement in net income margin figure from 1.7% in 2016 to 4.1% in 2018. The net income margin figure for Q1 2019 was 6%, and we expect it to increase to 10% for full-year 2019.

We forecast Amazon’s EPS figure for full-year 2019 to be $58.08. Taken together with our forward P/E multiple of 35 for the company, this works out to a $2,056 price estimate for Amazon’s stock (shows cash and valuation analysis).