Amazon.com Inc. Earnings Saw $1.8 Billion in Domestic Retail Profits

Online retailer and cloud-computing service provider Amazon.com (NASDAQ: AMZN) reported second-quarter results this Thursday evening. The report far exceeded Amazon's guidance, particularly on the operating profit line.

Amazon's second-quarter results: The raw numbers

What happened with Amazon this quarter?

• These results compared favorably to Amazon's guidance for the quarter, which called for total operating income of roughly $1.5 billion on revenues in the neighborhood of $52.5 billion. The actual results were $3.0 billion and $52.9 billion, respectively.
• Amazon's 39% year-over-year sales growth included a modest tailwind from a strengthening dollar as compared to other major world currencies in markets where the company does business. This effect was right in line with the expectations management baked into their official second-quarter guidance targets. Counted in constant currencies, Amazon's revenues rose 37% higher.
• North American retail sales increased by 44%, to land at $32.2 billion. This division produced $1.84 billion of segment-level operating income, up from $436 million a year earlier. That works out to a 5.7% operating margin for this business unit.
• International retail sales stopped at $14.6 billion, a 27% gain as reported, or 21% when you back out currency exchange effects. Here, Amazon recorded an operating loss of $494 million compared to a $724 million loss in the year-ago period.
• The cloud-computing service known as Amazon Web Services, or AWS, boosted top-line revenues by 49%, to $6.11 billion. Easily Amazon's highest-margin division with a 27% operating margin, this unit grew its operating income by 79%, to $1.64 billion.
• Management's stated long-term goal is to optimize Amazon's free cash flows. To that end, the company more than tripled its free cash flows in the second quarter. The free cash meter stopped at a cool $4.5 billion this time around.

What management had to say

Management's prepared comments in the earnings release focused on the growth of the Amazon Alexa digital assistant and its global ecosystem. "We want customers to be able to use Alexa wherever they are," said Amazon founder and CEO Jeff Bezos. "There are now tens of thousands of developers across more than 150 countries building new devices using the Alexa Voice Service, and the number of Alexa-enabled devices has more than tripled in the past year."

Bezos also called out a handful of recently Alexa-enabled devices by name, highlighting home audio components, both high-end and mass-market car brands, smart-home devices, and Windows 10 PC systems.

Looking ahead

For the third quarter, Amazon's management offered the following guidance ranges:

• Net sales should land between $54.0 billion and $57.5 billion, representing a 27% year-over-year increase at the midpoint of that range. Foreign exchange rates played a small role in that calculation, presenting a 0.3% revenue-reducing headwind this time.
• Operating income is targeted at approximately $1.9 billion, give or take $500 million in either direction. Wherever Amazon stops in that range, it will be a huge improvement over the $347 million seen in the third quarter of 2017.

10 stocks we like better than AmazonWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Amazon wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 4, 2018

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.