Amazon makes a killing

AmazonOnline bookseller Amazon has made a killing and swept away analysts’ estimates and dusted the mantelpiece of doubts about the online retailer’s investment spree.

JP Morgan analysts muttered in a research note that whatever Amazon was doing it appeared to be working.

“While it’s tempting to try to pull out each component of Amazons  strong 1Q and generally recent performance, we think it’s the combination of many factors – the ‘Amazons Flywheel’, Prime, a growing distribution footprint, getting closer to customers, 3P (third party), AWS … the list goes on,” a JP Morgan analyst grumbled.

The “Amazon Flywheel” was Jeff Bezos’ cunning plan of offering the biggest selection of goods at the lowest prices and providing the best customer experience to create a “positive feedback loop” – whatever that is.

Amazon is also known for making bold investments in new business areas even at the expense of profits – a strategy that is often criticised by investors.

“We believe these results are further evidence that Amazon’s investment in infrastructure, logistics, and Web services is accelerating market share gains, cash flow growth and continued high returns on invested capital,” Goldman Sachs analysts wrote in a client note.

Revenue in Amazon’s three main businesses – online retailing in North America, international online retailing, and cloud business Amazon Web Services – swelled 27 percent, 26 percent and 64 percent respectively.

The company also offered a bright outlook, with revenue guidance for the current quarter of $28 billion to $30.5 billion, compared with the $28.33 billion analysts expected.

AWS, launched 10 years ago, delivered more profit in the first quarter than Amazon’s retail business.

While AWS is Amazon’s fastest-growing business, Amazon Prime and Marketplace, where the company acts as a middleman for third-party vendors, are also gaining momentum.

Amazon’s Prime loyalty program offers one-hour delivery, original TV programming and access to digital entertainment products such as Prime Music and Prime Video for an annual $99.

All this means that Amazon is valued at $317 billion, making it the third-largest U.S.-listed company by market value, behind Apple and Alphabet, both of which posted disappointing quarterly results.

Amazon shares, which have gained 40 percent in the past year, trade at 98.7 times forward earnings, indicating that investors see huge potential for more growth. Apple trades at 10.8 times earnings, while Alphabet trades at 19.9 times.