Amazon reported its first quarterly net loss of $3.8 billion in Q1 as compared to a net income of $8.1 billion a year ago. This included a pre-tax valuation loss of $7.6 billion as a result of its investment in electric car company Rivian Automotive (RIVN), which resulted in the overall net loss for the company. Shares of Amazon (AMZN) plunged over 10% post its results after the company announced weaker than expected next quarter guidance. However, revenues came in line with street expectations in spite of the inflationary pressure and supply chain woes as expressed by the management.
Key Highlights
- Revenues: $116.44 billion (actuals) vs. $116.43 billion (expected) increase of 7% year-on-year
- Earnings: $7.56 per diluted share (actuals) vs. $8.36 (expected)
- Operating income: decreased to $3.7 billion compared to $8.9 billion a year ago
- Net Loss: $3.8 billion compared to the net income of $8.1 billion in Q1 2021
Amazon has rallied 4000% since its last stock split
The stock has rallied almost 4000% since its last stock split in 1999 and touched an all-time high of $3,773 post the pandemic (July 2021) and is currently in consolidation mode (trading at its near 52-week lows). Most analysts and investment banks maintain a “Buy” rating on Amazon. Goldman Sachs maintains a “Buy” rating on the stock post the results with revised price target of $3,700 from the previous $4,000 price target. The company announced a 20-for-1 stock split on March 9 which is reportedly its fourth split since its IPO in 1997 and the expected date for the split is early June.
Exhibit 1: Amazon’s stock performance since its IPO
Source: Macrotrends.com, April 2022
Revenue growth slows down from the pandemic peak
Revenues for the quarter grew by 7% from a year ago, however it marked the slowest growth rate and the second straight period of single-digit growth rate. Like the other Tech giants which reported earnings last week, Amazon is attributing its slowdown in growth to the current macroeconomic conditions and the pandemic along with higher fuel and labour costs and global supply chain concerns which has impacted the company’s overall revenue growth. However, the management expressed that the staffing and its warehousing capacities are at normal levels currently.
Exhibit 2: Overall quarterly revenues of Amazon
Source: Company Financials, April 2022
Amazon introduced a 5% surcharge on sellers to offset its rising costs
In order to offset some of the higher costs impacting the overall growth of the company, Amazon recently introduced a 5% surcharge (first time the company has ever introduced surcharge) for some of its U.S. sellers and additionally hiked prices of its U.S. Prime membership to $139 from the previous $119.
Key Segment performance
- Amazon Web Services (AWS): $18.44 billion (actuals) vs. $18.27 billion (expected)
- Advertising revenues: $7.88 billion (actuals) vs. $8.17 billion (expected)
Amazon’s cloud continues to remain the market leader
Amazon’s cloud business (AWS) continues to show significant strength and well ahead of competition from its immediate peers Microsoft (MFST) and Alphabet (GOOGL) in the cloud business. Sales from Amazon Web Services (AWS) increased to $18.44 billion which was up over 36% from a year ago and above street expectations of $18.2 billion. The Operating income from the AWS segment grew by 57% to $6.5 billion in spite of the overall operating income being lower at $3.7 billion from the previous $8.9 billion seen a year ago.
Exhibit 3: Segment-wise revenues during the quarter
Source: Company Financials, April 2022
Next quarter guidance
- Net Sales are expected to be in the range of $116 billion-$121 billion or likely to grow between 3%-7% as compared to Q2 2021.
- Operating income (loss) is expected to be between $ (1.0) billion-$3.0 billion compared to $7.7 billion in second quarter of 2021.
The management also expressed that the Prime Day Sale (two-day discount event) is likely to take place in July this year as against Prime day sale held in June last year which has been moved to third quarter this year. This may likely impact year-on-year comparisons for revenues in the next quarter.
Apple reports record revenues with strong iPhone sales and services business
The company reported record revenues of $97.28 billion higher by 8.6% year-on-year and a diluted earnings per share (EPS) of $1.52. Revenues from the services business which includes subscriptions, licensing fee and extended warranties hit an all-time high $19.8 billion which grew over 17% year-on-year. The quarter also reported revenue records for iPhone, Mac and Wearables, Home and Accessories segment and showed significant strength in operating performance with over $28 billion in operating cashflows during the quarter and returned nearly $27 billion to its shareholders during the quarter.
However, the shares of Apple were down post the results as the company expressed to its shareholders that they are likely to face challenges including the supply constraints which is likely to impact the overall revenues by almost $8 billion in the current quarter.
Key Highlights
- Revenues: $97.28 billion (actuals) vs. 93.89 billion (estimated) higher by 8.6% year-on-year
- Earnings: $1.52 per share (actuals) vs. $1.43 per share (estimates)
- Gross Margins: 43.7% (actuals) vs. 43.1% (estimated)
- Declared cash Dividends of $0.23 per share an increase of 5%
- Operating cashflow: $28 billion generated through strong operating performance
- iPhone revenues: $50.57 billion vs. $47.88 billion (estimated) higher by 5.5% from a year ago.
- Services segment revenue: reaches new all-time high
iPhone sales showed continued growth and accounted for over 50% of the quarterly revenues
The company reported a record level of smart phone sales which grew over 5% to $50.6 billion and the latest version of iPhone 13 model showed improved sales numbers. Apple reported a successful quarter in terms of new buyers (switchers) and record level of upgraders. It was clearly a strong quarter for the smart phone business despite a challenging iPhone comparison over the previous year as the new models were launched in 2021.
The Mac computers segment reported a strong growth of $10.4 billion (higher by almost 15% year-on-year) after the company transitioned to use its own M1 chips. (replacement for Intel processors). Apple’s continued strong demand for its products added to achieve an all-time high for the installed base of active devices.
Exhibit 4: Revenues from across categories during the quarter
Source: Company Financials, April 2022
Apple’s services business remains profitable
Apple set an all-time revenue record for the services segment during the quarter. The company’s services business which mostly includes subscriptions, licensing fees and extended warranties reported a growth of over 17% year-on-year to $19.8 billion.
America remains the key market for the overall growth for the company
The America which was the fastest-growing region saw a revenue growth of over 16% to $40.9 billion as against $34.3 billion a year ago (Graph below).Additionally, the covid-related China lockdowns did not affect the sales and revenues from the region (Greater China) but grew at a slower pace of 3.5% to $18.3 billion year-over-year.
Exhibit 5: Region-wise revenues seen during the quarter
Source: Company Financials, April 2022
Share buybacks
The company’s Board of Directors authorized $90 billion in share buybacks and remains as the public company that spends the most in buying its own shares. Apple had previously spent $88.3 billion in Share buybacks in 2021.
Outlook
Apple has not provided any forecast for the current quarter, largely on account of uncertainty in terms of the pandemic along with the ongoing geopolitical tensions in Europe and the current lockdowns in China. The shares of the company were down post the results after the company CFO warned of the several headwinds in the current quarter including supply constraints that are likely to impact sales between $4 billion-$8 billion.
“We are delighted to see the strong customer response to our new products, as well as the progress we’re making to become carbon neutral across our supply chain and our products by 2030. We are committed, as ever, to being a force for good in the world- both in what we create and what we leave behind.”
Tim Cook, CEO, Apple
