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Cloud Computing Powers Amazon's Mammoth Results

By Danny Vena - May 2, 2018 at 4:35PM

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Amazon Web Services continues to drive Amazon's massive sales and shows no signs of slowing.

Expectations were high going into Amazon.com's (AMZN 3.53%) first-quarter financial release. Last quarter's stellar report was at the high end of the company's own forecast, and it also beat analysts' expectations. The biggest revelation for 2017's fourth quarter was the standout performance of Amazon Web Services (AWS), the company's cloud-computing segment. Investors were hoping for more of the same, and they got what they were looking for, which drove the stock to record heights.

Amazon reported net sales of $51 billion, up a massive 42.9% year over year, exceeding the high end of the company's guidance and analysts' consensus estimates. Excluding the favorable impact of foreign exchange rates, net sales increased 39% over the prior-year quarter.

Female employee filling orders in an Amazon fulfillment center.

Amazon continues to produce enormous growth. Image source: Amazon.

Escalating growth

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Net sales

$51 billion

$35.7 billion

43%

Operating income

$1.9 billion

$1 billion

92%

Net income

$1.6 billion

$724 million

125%

GAAP diluted earnings per share

$3.27

$1.48

121%

Data source: Amazon.com's First-Quarter Financial Release. Chart by author.

Net income soared to $1.6 billion, up 125% over the prior-year quarter, and producing earnings per diluted share of $3.27, skyrocketing past analysts' expectations for $1.25 per share.

Losses in Amazon's international segment increased as the company continued its worldwide expansion, but they were more than offset by operating income in North America that nearly doubled.

AWS continues to be the standout with net sales of $5.4 billion, up 49% year over year,  and it is producing 10.6% of Amazon's total net sales. Operating income at the cloud segment jumped to $1.9 billion, up 73% over the prior-year quarter, and generating 73% of the company's total operating income.

Operating Income Segment

Q1 2018

Q1 2017

Year-Over-Year Change

North America

$1.15 billion

$596 million

93%

International

($622 million)

($481 million)

(29%)

AWS

$1.4 billion

$890 million

57%

Total

$1.9 billion

$1 billion

92%

Data source: Amazon.com's First-Quarter Financial Release. Chart by author.

Amazon CEO Jeff Bezos made a rare statement in the earnings release, saying:

AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down. As a result, the AWS services are by far the most evolved and most functionality-rich ... That's why you're seeing this remarkable acceleration in AWS growth, now for two quarters in a row.

Looking ahead

For the second quarter, Amazon is forecasting net sales in a range of $51 billion to $54 billion, which would represent growth between 34% and 42% compared to the prior-year quarter, and it would include a favorable impact of $1.2 billion from foreign exchange rates. The company expects operating income between $1.1 billion and $1.9 billion, which would be growth between 75% and 202% compared to the year-ago quarter.

AWS has been the leader in cloud computing for years, and that growth shows no signs of slowing. It serves as a cash cow that provides Amazon with a significant amount of flexibility and the means to continue its global expansion.

As impressive as this staggering amount of growth is, there appears to be much more to come from the cloud computing and e-commerce giant.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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