E-commerce and cloud-computing giant Amazon (NASDAQ:AMZN) managed to impress investors yet again when the company reported its second-quarter financial results last week. Featuring sharply higher revenue and blistering earnings-per-share growth, the results continued to justify Amazon stock's pricey valuation.
However, for investors who want to see beyond the company's 39% year-over-year revenue growth, 1,168% EPS growth, and other key metrics from Amazon's earnings release, investors can look to the company's quarterly conference call. During the call, management discussed a range of important topics, including its fast-growing advertising business, its PillPack acquisition, and more.
Here are three key takeaways from the earnings call.
Advertising: momentum persists
Investors who took the time to listen to Amazon's first-quarter earnings call would have learned that Amazon's nascent advertising business is growing into a meaningful contributor to the company's overall results. Buried in Amazon's "other" segment, commentary from management helps investors get a better idea of how well advertising is performing. In the call, management said that advertising had morphed into a "multibillion-dollar program" and played the primary role in the 73% year-over-year growth in Amazon's first-quarter other products revenue (when adjusted to exclude $560 million of incremental revenue during the quarter due to a change in the company's revenue recognition practices).
Advertising continued to be a catalyst for Amazon's business in the second quarter, according to Amazon CFO Brian Olsavsky. It was particularly a boon for Amazon's higher-than-expected operating margin during the quarter, Olsavsky noted:
I would say that, in addition to the operating efficiencies [that helped profitability during the quarter], advertising is also starting to make an impact on gross profit.
Amazon's advertising business helped drive a 132% year-over-year increase in other revenue during the quarter, or 64% growth when adjusting to exclude the additional $640 million of revenue Amazon recorded because of its revenue recognition accounting change this year.
Third-party Alexa-enabled devices: Time to monetize?
With the number of Alexa-enabled devices available for customers to purchase more than tripling over the past year, it wasn't surprising when one analyst asked whether Amazon has plans to monetize the growing number of third-party Alexa-enabled devices.
However, Olsavsky said monetization isn't something management is focusing on yet. "Right now, our emphasis is around expanding the reach of Alexa and the usefulness [of Alexa]," he said.
Amazon's latest acquisition: Why PillPack?
After signaling its move into the pharmaceutical space with the announcement of a deal to acquire PillPack -- a mail-order pharmacy business -- in June, investors are looking for more insight into management's reasoning for the deal. Though management refrained from commenting at length about the acquisition since the deal hasn't closed yet, Olsavsky did provide some context:
I think the company has a really highly differentiated customer experience, and they've done a great job getting to the size and scale that they're at today. We think that working together with them we can expand on that in the future.
Olsavsky added that Amazon's strategy with acquisitions is to look for companies with "a real sense of customer obsession that matches ours." According to Olsavsky, PillPack possessed this customer-centric focus.