AMAZON COM INC Quarterly Report for Q1 Ended Mar 31, 2013

Summary

Amazon.com Inc. (AMZN) reported its first-quarter 2013 financial results, reflecting continued top-line growth but a decline in operating income compared to the prior year. Total net sales increased by 22% year-over-year, reaching $16.07 billion, driven by a 26% increase in North America sales and a 16% increase in International sales. While revenue growth remains strong, the company experienced a 6% decrease in income from operations, falling to $181 million from $192 million in Q1 2012. This was attributed to increased operating expenses, particularly in fulfillment, technology and content, and marketing, which outpaced the revenue growth. The company's cash position saw a significant decrease during the quarter, with cash and cash equivalents falling from $8.08 billion at the end of 2012 to $4.48 billion at the end of Q1 2013, primarily due to substantial investments in property and equipment and a notable decrease in net cash provided by operating activities on a quarterly basis. Despite the operational cost pressures impacting short-term profitability, Amazon continues to invest heavily in its infrastructure and growth initiatives, including Amazon Web Services (AWS). The company's free cash flow for the trailing twelve months ended March 31, 2013, was $177 million, a significant decrease from $1.15 billion in the prior year, largely due to increased capital expenditures. The company also reported an income tax benefit of $18 million for the quarter, influenced by discrete tax benefits from the reinstatement of the R&D credit. Investors should note the ongoing significant investments in technology and content, which are crucial for future innovation and competitive positioning.

Key Highlights

• 1Total net sales grew 22% to $16.07 billion in Q1 2013, driven by strong performance in both North America (+26%) and International (+16%) segments.
• 2Income from operations decreased 6% to $181 million, indicating increased operating expenses outpacing revenue growth.
• 3Cash and cash equivalents decreased significantly to $4.48 billion from $8.08 billion at the end of 2012, reflecting substantial investments.
• 4Free cash flow for the trailing twelve months ended March 31, 2013, was $177 million, down from $1.15 billion in the prior year, primarily due to higher capital expenditures.
• 5The company reported an income tax benefit of $18 million, aided by a $46 million discrete benefit from the R&D tax credit reinstatement.
• 6Investments in 'Technology and content' increased significantly, driven by infrastructure build-out for AWS and digital initiatives.
• 7Gross margin improved to 26.6% from 24.0% in the prior year, primarily due to an increasing proportion of higher-margin services sales.

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