Please ensure Javascript is enabled for purposes of website accessibility

Digging Into Another Winning Quarter for Unstoppable Amazon

By Motley Fool Staff – May 3, 2018 at 7:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

From Prime to AWS to Whole Foods to ads, the e-commerce giant kept firing on all cylinders in Q1.

In this segment of the Motley Fool Money podcast, host Chris Hill is joined by senior Fool analysts Jason Moser, David Kretzmann, and Jeff Fischer to talk about's (AMZN -0.12%) first-quarter report, which was impressive, and its outlook, which is even more so.

The company's profit more than doubled in Q1, and it feels secure enough about the enduring appeal of Amazon Prime to raise its prices for the service by $20 a year. And below the headline results, there's only more good news. The Fools consider where the e-commerce leader is headed from here.

A full transcript follows the video.

This video was recorded on April 27, 2018.

Chris Hill: Last week, we started the show with Amazon's CEO Jeff Bezos revealing the company has 100 million members in Amazon's Prime service. This week, we begin with Amazon's first quarter report. Profits more than doubled and the company announced it is raising the annual fee for Prime membership from $99 to $119. Jason, it is the first time in four years Amazon has raised membership fee, and I don't think anyone is going to bat an eye.

Jason Moser: [laughs] I agree with you. It's a much better service today than it was just a couple of years ago. In regard to the quarter, what's to say? It seems like this was really just more of the same, and for a company of this size to be growing its top line at those rates, it's really nothing short of phenomenal. And there's really no reason to think it shouldn't continue. They've guided for this current quarter for just under 40% top-line growth at the midpoint there. Operating margins for the quarter were up across the board. Amazon Web Services is operating on a $22 billion run rate at this point. Under the radar, there, they have a multi-billion-dollar ad business to boot. So, I think there are just a lot of different ways for this business to win.

A lot of headlines out there recently in regard to President Trump and the Post Office and whatnot. If you think that's going to have some sort of an impact on this business, I just advise you to lay off the hash pipe and think about this for a second. If the Post Office loses Amazon's business, their business goes from bad to worse. There's no reason to think that that's going to happen. If anything, the Post Office needs more Amazon, just like we need more cowbell, Chris.

Jeff Fischer: Yeah. The market sees a lot of opportunity ahead, too, Jason. They just priced Amazon at above $730 billion, the company as a whole, making it just a bit larger than Microsoft and Alphabet, and with good reason. All the revenue streams that Jason just touched on are all growing strongly. Some of them are very high-margin, including the advertising business. Incidentally, I saw a Prime Air jet at the Baltimore Washington Airport the other day, and it's a slick-looking airplane. [laughs]

Moser: A lot of Prime 18-wheeled trucks on the road these days, too, it seems.

Fischer: Yeah, they're building that out.

David Kretzmann: And it's crazy, with about 100 million Prime members, which Jeff Bezos unveiled in the shareholder letter a few weeks ago, and raising the Prime membership by $20, that means about pretty much $2 billion of pure profit added to the bottom line. Not too shabby when you have a subscription business with high retention rates.

I think it's also important to remember that we still haven't lapped the Whole Foods acquisition. The revenue growth that we're seeing is kind of artificially boosted by that Whole Foods acquisition, but I think we're still obviously in the very early stages of rolling out that online grocery delivery. Right now, in the U.S., online grocery sales still make up just about 3% of the total grocery market. And I think Whole Foods and Amazon combined are in a great position to bump that percentage up.

Hill: You know, there was this story over a year ago about the grocery store that Amazon was developing in Seattle, where basically, you wouldn't have to go through the checkout, it would all be linked to your Prime account, they'd use near-field technology. Where is that? Is that coming? Should we expect that to be rolled out into Whole Foods? Or was that just an interesting test that needs a lot more work?

Moser: I think it's an interesting test. It's probably technology that needs to be perfected. I'm a little bit more enthralled with the personal robot efforts. I don't know if you saw anything about this, but it sounds like, in about a year, they may be taking us one step closer to the rise of the machines, Chris, so be afraid. Be very afraid!

Hill: I'm already afraid.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Hill owns shares of Amazon. David Kretzmann owns shares of Alphabet (C shares) and Amazon. Jason Moser has no position in any of the stocks mentioned. Jeff Fischer owns shares of Alphabet (C shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon Stock Quote
$120.95 (-0.12%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.