Amazon is no “online book store.” The company’s web services operation is a powerhouse, and its earnings potential is starting to show. We liked the company’s first-quarter 2018 results a lot.
By Brian Nelson, CFA
On April 26, Amazon (AMZN) reported fantastic first-quarter 2018 results after the market closed. During the period, net sales increased an incredible 43% from last year’s quarter, while operating income jumped more than 90%, to ~$1.9 billion, compared with ~$1 billion in the year-ago period. CEO Jeff Bezos continues to talk up Amazon Web Services, and the company is backing up his excitement with a surging top line and improved profitability. Operating cash flow increased 4%, to $18.2 billion, on a trailing 12-month basis, but free cash flow did fall to $7.3 billion for the trailing 12 months from $10.1 billion in the trailing 12 months a year ago.
Looking to the second quarter of 2018, Amazon’s net sales are expected in the range of $51-$54 billion, reflecting growth between 34%-42% versus the same period last year, and operating income between $1.1-$1.9 billion, up from the $628 million mark in the second quarter of 2017. We like the tremendous pace of growth, and we like the magnitude of profitability even more. At the end of the first quarter of 2018, Amazon held a very modest net cash position, with both total cash and total debt standing at ~$25 billion. We expect to raise our fair value estimate of Amazon materially on account of expectations for profitability to accelerate in coming years.
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.