Amazon net sales up but profits miss expectations

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Their latest quarterly report shows Amazon net sales up 20% to $63.4bn. Excluding an $814 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, Amazon net sales increased 21% compared with second quarter 2018.

Net income increased to $2.6 billion in the second quarter, or $5.22 per diluted share, compared with net income of $2.5 billion, or $5.07 per diluted share, in second quarter 2018.

This all sounds great with massive figures, but it didn’t please investors as expenses rose and guidance for the rest of the year from Amazon is muted. Revenue was towards the upper end of the expected range, but net income was down and expected to remain below expectations for Q3.

Some of Amazon costs come from an increased transport bill in part attributed to the move to one-day delivery, but AWS growth has also slowed, reporting it’s slowest growth for five years. Increased expenses are expected to run for the rest of the year and has led to a drop in Amazon’s share price which dropped from an open of $2000 Thursday morning to $1940 on Friday, with another dip later in the day before closing the week at $1942.

Amazon reported that Prime Day was once again the largest shopping event in Amazon history with more than one million deals exclusively for Prime members. Over the two days of Prime Day, on the 15th and 16th of July, sales surpassed last Black Friday and Cyber Monday combined. Amazon also saw more new Prime members on the 15th of July 15 than any previous day, and almost as many on the 16th making these the two biggest days ever for member signups.

It remains to be seen if this is the end of Amazon’s record run of stellar earnings which saw them report profit of more than $10 billion last year. Sales are up, but with expenses also up 2019 could turn out to be a year of growth and investment for Amazon but not a year for gigantic profits. That won’t bother Amazon however, their history is of investment for the future and there’s no reason to expect this to change.

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