Amazon has entered its “golden age” according to analysts after it blitzed expectations in the first quarter seeing sales soar 44 per cent to over $100 billion.
Amazon’s shares have continued their upward trajectory rising three per cent after the retail giant saw “margins gallop ahead” once again.
Over its first quarter Amazon saw net sales top $108.5 billion, coming comfortably above Wall Street estimates of $104.5 billion, while profit after tax more than tripled on the same period last year jumping from $2.5 billion to $8.1 billion, trouncing expectations of just $5 billion.
The higher profits were driven by a significant boost in services like Amazon Prime and Prime Video, which net far higher margins than its traditional retail offering which still saw growth of 37.4 per cent.
According to founder and chief executive Jeff Bezos “175 million Prime members have streamed shows and movies in the past year, and streaming hours are up more than 70 per cent year-over year”.
Meanwhile the group’s increasingly dominant cloud computing arm Amazon Web Services (AWS) also performed strongly, seeing revenues climb 32 per cent year-on-year to $13.5 billion.
Unlike its smaller rival marketplace Ebay, which also released results this week, Amazon expected the pandemic-led boom to continue into the next quarter, expecting sales to come in at between $110 billion and $116 billion, once again blitzing estimates of $108.6 billion.
This is largely due to plans to launch its Prime Day shopping festival a month early in June, helping boost its second quarter earnings considerably.
Despite a continued rapid roll out of physical stores, seeing three new Fresh stores open in London during the quarter alone, Amazon’s bricks-and-mortar store revenue dropped 16 per cent to $3.9 billion.
“Despite billions in extra costs associated with the pandemic, Amazon has seen margins gallop ahead. There are two main reasons for that,” Hargreaves Lansdown’s equity analyst Nicholas Hyett said.
“A huge surge in retail volumes in the US and abroad has boosted revenues to the point where they are more than covering the fixed cost base – a fixed cost base which is itself growing at breakneck speed as the group continues to invest in fulfilment infrastructure.
“The overall revenue mix is also shifting more towards service, now accounting for 47% of revenues compared to 44.5% a year ago. That might sound small, but service revenues are far higher margin and we suspect the 70% or so growth in advertising revenues is even higher margin than usual.
“This could be a golden age for the group. With high streets shut Amazon is a natural home for consumers’ spare cash, AWS services remote working, which has suddenly become the norm, and tech wizardry is all the more useful when we can’t see friends and family in person. It’s possible those tailwinds begin to unwind in the months ahead, and the golden age is followed by some dark years. Somehow we doubt it.”