No secret that AMZN smoked the quarter. They give sparse guidance and disclosure -- combined with meteoric growth on a massive $48bn revenue base and sub-2% margins, this company has never been afraid to print a number three standard deviations from the mean.
Importantly, after 3 quarters of deterioration in the underlying 2 yr top line trends, 1Q marked a reacceleration in growth with the midpoint of 2Q guidance suggesting additional improvement in underlying trends moving through 1H. Although EBIT guidance of (-$260mm) to $40mm was shy of expectations ($152mm E), its worth noting that AMZN has remained profitable after guiding to a potential operating loss in both of the last 2 quarters.
What Drove the Beat?
Revenue: +34% vs. +31E (North America contributed 20 points of growth, Int’l 14 points)
- North America: +36% vs. +34E
- International: +31% vs. +28E
Gross Margin: +114bps vs. -47E
SG&A: +54% vs. +46E (+295bps as % of sales vs. +230)
EBIT Margin: -181bps vs. -277E
Equity Method Investment (net of tax): $89mm benefit vs. $17mm unfavorable impact LY ($0.19 benefit)
Below is the AMZN SIGMA and the Key Takeaways from this evening’s conference call:
Quarterly Review:
TTM FCF: -39% to $1.15bn
ROIC: 12% (Down from 24%)
Stock repurchase in Q: 5.3mm shares at $960mm
P&L
North America: +36% Sequential Deceleration
- Media: +17% Acceleration
- EGM: +45% Deceleration
- Other: +65.3% Acceleration
- EBIT margin: -61 bps
International: +31% (+32% constant currency) Sequential Acceleration
- Media: +21% (+18% cc) Acceleration
- EGM: +40% (+42% cc) Acceleration
- Other: +24% (+26% cc) Deceleration
- EBIT margin: -313 bps
Worldwide: +34% (+34% constant currency) Sequential Deceleration
- Media: +19% (+19% cc) Acceleration
- EGM: +40% (+43% cc) Deceleration
- Other: +61% (+61% cc) Acceleration
- EBIT margin: -181 bps
Additional Metrics:
Worldwide paid unit growth: +49%
Active Customer Accounts exceeded 173mm
Worldwide active seller accounts exceeded 2mm
Seller units: 39% of paid units vs. 35% paid LY
SG&A: +54% (+295bps as % of sales)
Fulfillment: +52% (+115 bps as % of sales)
Marketing: +47% (+32 bps as % of sales)
Technology/Content: +63% (+129 bps as % of sales)
G&A: +50% (+17 bps as % of sales)
Other: +39% (+1 bps as % of sales)
Balance Sheet:
Inventories: +47% (turns 10.4, down from 11.6 LY)
Accounts payable days down 62 from 66
Capex: $386mm (reflects business growth, investments in tech infrastructure incl AWS and additional capacity to support fulfillment operations)
2Q Guidance:
Revenues: $11.9 billion to $13.3 billion (+20%-34% vs. +30E)
- Anticipates 240bps unfavorable impact from FX
Operating Income: $(260) million and $40 million vs. $152.4
Capex: $0.8 to $0.9bn
Q&A Rundown:
2012 Fulfillment Center Plans:
- Have announced 13 fulfillment centers thus far for 2012
- Any changes will be announced but experiencing strong growth at retail as well as third party growth increasing over 60%, FTA also strong
North American Operating Margins:
- Investing heavily in both NA & International
- Have launched new Int'l' geographies over the last few years where AMZN continues to invest which is some of the dynamic impacting international margins vs. North America
Third Party Growth
- Strong growth across Int'l as well as North America
- Investing on behalf of customers and sellers as well as retail for the required capacity
- Fulfilled by Amazon having a positive impact on all of the geographies AMZN operates in
Employee base growth:
- Adding a great deal of resources across a number of areas
- Vast majority of Q1 employee growth in operations and customer service
- A lot of Q4 hires are temporary with a lot of those going permanent coming out of 2011 in 1Q12
Inventories:
- Currently have inventory on hand to support the Amazon Supply business
- Inventory increases have been broad across a number of different business, categories and geographies
Amazon Supply
- Have been serving businesses for sometime- Amazon supply is a separate URL with an interesting selection to continue to serve businesses
Kindle Fire:
- Pleased with the growth seen in Kindle Fire
- Customers buying a lot of content particularly in North America
- Part of acceleration in Media growth in NA due to Kindle content
Media growth:
- Video games are a seasonal business and brought down growth in Q4 which did not continue into 1Q12
- Adding more video content which is reflected in top line guidance
Category headwinds/tailwinds:
- Supply issues related to Thailand floods created a headwind in 4Q11 & 1Q12 in categories including cameras, audio equipment & office equipment- It helped in cases where third party sellers still had inventory
- Had strong broad based growth in Q1 across many categories
- Strong growth in kindle globally
- AWS is growing fast
Europe impact on international sales
- Having some impact on performance
Mobile purchasing behavior:
- Mobile business is growing fast and is an exciting opportunity
- Will continue to work on the category to enhance the customer experience over time
Taxes:
- Approx 50% of sales collect a sales tax or value added tax (several states in the US today and a large number of geographies outside of the US)
- Have good businesses in those geographies
