AMZN Priced for Perfection: Should Investors Worry?
On Thursday, the company reported Q1 earnings results that blew away analysts' estimates. The company reported net sales for the quarter of $13.2 billion -- representing an increase of 34% from the $10 billion that it reported a year ago. Consensus expectations for revenue were $12.9 billion. The company said its rise in sales was driven largely by increased demand of the Kindle Fire. Amazon also reported operating income of $192 million compared with $322 million a year ago.
As great as these numbers were, what blew away the street was its EPS -- which came in at a stunning $0.28 cents, four times better than the consensus EPS estimates of $.07.
In terms of outlook, Amazon said it expects revenue in the current quarter to grow between 20% and 34%, or to between $11.9 billion and $13.3 billion, which includes the negative impact of foreign exchange movements. Ahead of the guidance, analysts had expected second-quarter revenue of $12.8 billion. That was higher than the midpoint of Amazon's forecast of $12.6 billion.
Overall, I have to say that I was exceedingly impressed with the report and the company was right for having made the significant level of investments in its infrastructure. Essentially, it paid money to grow -- a decision that was met with severe scorn.
But today it is clear that the company is feeling a sense of vindication, and rightfully so. The company's goal was to build a system to support its vision of a larger business and in doing so it incurred some diseconomies of scale -- a sacrifice that (I assure you) many companies (going forward) will now look to make.
As perfect as Amazon must be to maintain its lofty valuation, it seems the company is executing to perfection. Though it often remains in the shadows of Apple(AAPL) and Google(GOOG) among the best tech names on the market, and even below Wal-Mart(WMT) in terms of reported sales, there aren't many companies the size of Amazon producing the level of growth it has demonstrated.