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Amazon's Earnings Trounce Expectations: 5 Metrics You Should See

By Beth McKenna - Jul 30, 2020 at 6:50PM

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Amazon stock popped 5% after the e-commerce giant reported strong pandemic-driven Q2 results on Thursday after the closing bell.

Amazon.com (AMZN 3.53%) reported powerful second-quarter 2020 results after the market close on Thursday. Shares are up 4.8% in Thursday's after-hours trading session, as of 5:27 p.m. EDT.

We can attribute the market's delight to the global e-commerce and cloud computing leader's trouncing of Wall Street consensus estimates on both the top and bottom lines. Its third-quarter revenue guidance also exceeded analysts' expectations. Here's an overview of the tech-giant's quarter, along with its guidance.

An Amazon tractor-trailer with Prime on side of trailer.

Image source: Amazon.

1. Revenue surged 40%

Amazon's net quarterly sales surged 40% year over year to $88.9 billion, easily beating the $81.5 billion Wall Street had expected. The company sailed by its guidance range of $75 billion to $81 billion. Excluding the negative impact from foreign-currency exchange, revenue climbed 41%.

For context, in the first quarter, Amazon's revenue rose 26% year over year (27% in constant currency) to $75.5 billion.

Here's how revenue broke out by segment:

Segment

Revenue for Q2 2020

Change (YOY)

North America

$55.4 billion

43%

International

$22.7 billion

38%

Amazon Web Services (AWS)

$10.8 billion

29%

Total

$88.9 billion

40%

Data source: Amazon. YOY = year over year.

The company's e-commerce business, particularly in North America, benefited from a brisk tailwind from the COVID-19 pandemic.

2. Operating income soared 89%

Operating income increased 89% year over year to $5.8 billion, which crushed Amazon's guidance of an operating loss of $1.5 billion to an operating gain of $1.5 billion. This was an especially impressive feat considering the company incurred over $4 billion of incremental costs related to COVID-19, as essentially planned. (It had guided for "approximately $4 billion" of incremental costs related to the pandemic.) 

Segment

Operating Income for Q2 2020

Change (YOY)

North America

$2.1 billion

37%

International

$345 million

N/A. Improved $946 million from a loss of $601 million in the year-ago period.

AWS

$3.4 billion

58%

Total

$5.8 billion

89%

Data source: Amazon. YOY = year over year.

All three segments performed well, with cloud computing service AWS having a particularly profitable quarter. The pandemic has driven a surge in internet traffic because many more people than usual have been working from home and otherwise staying there. This phenomenon has been a tailwind for cloud service companies.

While North America performed very well considering the pandemic, its operating income performance wasn't as robust as the 37% year-over-year growth figure might suggest. The segment's year-ago operating income was significantly dented by Amazon's spending on upgrading its core Prime free-delivery benefit from two days to one. 

3. EPS rocketed 97%

Net income doubled year over year to $5.2 billion. This translated to earnings per share (EPS) growing 97% to $10.30. Wall Street was looking for EPS of $1.46, so Amazon's result crushed that expectation. 

4. Operating cash flow rose 42% over the trailing-12-month period

Operating cash flow jumped 42% year over year to $51.2 billion for the trailing 12 months. Free cash flow increased 28% to $31.9 billion.

5. Revenue is expected to grow 24% to 33% in Q3 

For the third quarter, Amazon guided for net sales between $87 billion and $93 billion, representing growth of 24% to 33% year over year. This outlook exceeded the Wall Street estimate of $86.3 billion.

The company expects operating income between $2 billion and $5 billion, compared with $3.2 billion in the year-ago period. This guidance assumes more than $2 billion of costs related to COVID-19.

In short, Amazon turned in a fantastic quarter.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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