Amazon Earnings: 3 Key Takeaways for Investors

Earnings reports are exciting for investors because they offer a direct look into how a company is doing financially and where they will be going in the future. These reports are even more intriguing when a market-leading company like Amazon is reporting in the midst of the global health crisis. Most people already know just how successful Amazon has become over the past decade, and we might be witnessing their best year yet as people are forced to stay home and shop from their houses as a result of the pandemic.

Whenever billionaire CEO Jeff Bezos speaks, the whole market pauses to listen. The thing to understand about Amazon is that it is a very unique and diverse business that does more than just e-commerce. The massive company had sky-high expectations ahead of their Q1 earnings release, which could be a reason why they ended up missing on EPS estimates.

There’s always a lot of information to digest when a company as big as Amazon reports their earnings, which is why we’ve condensed it into 3 key takeaways for you below.

Solid Revenue Beat

We mentioned earlier that the expectations for Amazon’s earnings were high, and the fact that they were able to beat street estimates on revenue is a testament to just how strong their business is. Q1 revenue was $74.5 billion which was 26% higher than revenue figures from a year ago. The company has become a true necessity for people that are stuck at home during the global health crisis.

Although consumer demands have changed during the pandemic, massive order volume continues to drive Amazon’s profitability. Amazon trucks have been steadily delivering the daily necessities that people require even if that means shipping out fewer discretionary items like smartphones and computers. The Q1 revenue figures for Amazon were definitely encouraging.

Reinvestment in Operating Income

Every business in the world has had to adjust to the new economic environment caused by the COVID-19 outbreak. Some are struggling to stay afloat while others are positioning themselves for a bright future going forward. Another key takeaway from Amazon’s Q1 earnings report is Jeff Bezos’s plan to reinvest all of its Q1 operating income next quarter. Bezos stated “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small,” He backed this quote up by letting investors know that $4 billion in operating profit will be used to cover COVID-19 related expenses for the company.

Investors can look at this in two ways. Sure, using all of that money from Q1 is going to impact the company’s Q2 earnings. However, one could argue that those expenses are both necessary and sensible at this time. Jeff Bezos and his team will be using that money to keep Amazon employees safe with increased virus testing capacity and also use it to tackle any supply chain issues so that their products can continue reaching eager customers. It means that Amazon is taking a long-term view and suffering the expense hit now in order to position themselves strongly for the future. If you are a long-term investor, you understand that sacrificing short-term gains for long-term growth is a worthy tradeoff.

Amazon Web Services Topped $10 Billion

Most people think of e-commerce when they first hear the name Amazon, but the truth is that when you buy shares of Amazon, it’s almost as if you are buying shares in several different companies. One of the more intriguing segments of Amazon’s business is its cloud computing services, Amazon Web Services. It was impressive to hear that this marked the first quarter in which Amazon Web Services revenue topped $10 billion.

As more and more businesses have been forced to accelerate moves towards cloud services and allowing employees to work from home, Amazon Web Services has thrived. Cloud computing services are poised for a bright future, and it seems that Amazon will benefit directly as more and more companies change the way they do business. Investors have to be pleased with the growth in Amazon Web Services, which was another highlight of the recent earnings report.

Amazing Amazon

Although the market initially reacted poorly to this earnings report, there were a lot of positives for long-term investors to take away from it. With brilliant billionaire Jeff Bezos at the helm, it’s hard to imagine a scenario where Amazon doesn’t continue its growth and domination of several different industries in the near future.