Amazon.com (AMZN 2.02%) reported fantastic growth and performance in its first-quarter earnings release.
In this segment from the Motley Fool Money radio show, Chris Hill, Matt Argersinger, Jeff Fischer, and Ron Gross go over some of the biggest numbers from the report, and how the stock looks from a valuation standpoint. Then they look at Amazon's Web Services and international segments, including how well they did and how much potential for growth they have for the long term.
A transcript follows the video.
This podcast was recorded on April 29, 2016.
Chris Hill: Amazon's first-quarter revenue up 28% as the company posted its most profitable quarter ever, Matty. This was a really big quarter.
Matt Argersinger: I don't even know where to begin. Let's start with that revenue number -- up 28%. That is the fastest year-over-year growth for Amazon since 2012. Over four years, and a much, much larger company, and they're getting their fastest growth rate year over year in a long time. If you get into the details, it's even more impressive. Of course, Amazon Web Services is getting all the headlines, deservedly so. Revenue there was up 64%. Operating profits up over 200% to $600 million.
There were two things that really stood out to me that aren't getting a lot of press. If you look at the international segment for Amazon, sales there were up 24%. In recent quarters, Amazon has really reported no growth in that segment. And here they are, up 24%. And then, we talk a lot about Amazon video, all the digital things that Amazon Web Services is doing, but if we get to the meat and potatoes of this business, and you look at--
Hill: Selling stuff?
Argersinger: Selling stuff!
Jeff Fischer: A lot of stuff.
Argersinger: The electronics and general merchandise is how they break it out. Normal everyday stuff up 32% in North America, 31% internationally. And that, right there, to me, is clear evidence that Amazon continues to steal massive share from brick-and-mortar retailers.
Ron Gross: Did they turn off the spending spigot here a bit to juice those earnings? Or are they just spending as much as they always have?
Argersinger: No, spending didn't drop off that much at all. I think they're getting Amazon Web Services' higher margin, more cash is dropping to the bottom line there. It's so impressive.
Hill: Amazon Web Services is on pace right now to do about $10 billion in revenue in one year. There are some analysts out there who say, if you just break out this business on its own, it's a $100 billion business. Jeff, it's a $300 billion company. Is Amazon Web Services really worth a third of this overall company? I get that it's valuable, but that seems a little pricey.
Fischer: Well, it's exciting right now, Chris, because it's growing so rapidly, and it's reportedly a high-margin business. But, over time, there will be more competition, and the growth rate will, of course, slow, prices will probably come down. So, I wouldn't put an excessive amount of weighting to this business when I look at Amazon as a whole. I think, in the long run, the retail business will be a majority of the value there.
Argersinger: Right. And I would say, with Amazon Web Services, we don't really know to what extent they're going to get pricing power, like you said, Jeff. Or how sticky that's really going to be if there's so many competitors getting into that space. But I think it's all, for Amazon, really about Prime. We assign all these really high growth rates or high valuations to Amazon, but, really, it comes down to how many Prime numbers they can get. I think that's where the business is the most sticky.
Hill: When you look at the stock price, it's not at an all-time high, but up about 10% this week--
Fischer: Pretty close.
Hill: Yeah, it's closing in on it. How pricey does it look to you right now, Matt?
Argersinger: It always looks pricey. But if you just look at the consensus estimates, less than five years out, in 2020, the estimates are guiding for almost $30 per share in earnings. Whether or not Amazon actually delivers that on the bottom line... but if they think that kind of earnings power is there for Amazon, you apply a 30 multiple of that, or even a higher multiple of that, it doesn't look that expensive today.