10-QPeriod: Q2 FY2017

AMAZON COM INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 28, 2017For Securities:AMZN

Summary

Amazon.com Inc. reported solid performance for the second quarter and the first six months of 2017. Total net sales grew by 25% year-over-year for the quarter and 24% for the six-month period, driven by strong performance across all segments, particularly AWS and North America. Operating income saw a notable decrease compared to the prior year, primarily due to increased investments in fulfillment, technology, and marketing, especially in the International segment which incurred a significant operating loss. The company also announced its agreement to acquire Whole Foods Market, Inc. for approximately $13.7 billion, expected to be funded by debt and cash. This strategic acquisition, if completed, signals a significant move into the physical grocery retail space. Despite operational investments impacting short-term profitability, Amazon continues to demonstrate robust sales growth and strong cash flow generation, with free cash flow increasing year-over-year for the trailing twelve months.

Financial Highlights

51 data points
Beta

Revenue

$37.95B

38.2% Gross Margin

Net Income

$197.00M

0.5% Net Margin

EPS (Diluted)

$0.02

Total Assets

$87.78B

Cash & Equivalents

$13.20B

Free Cash Flow

$3.85B

Financial Statements
Beta
Revenue$37.95B
Cost of Revenue$23.45B
Gross Profit$14.50B
Operating Expenses$37.33B
Operating Income$628.00M
Interest Expense$143.00M
Net Income$197.00M
EPS (Basic)$0.02
EPS (Diluted)$0.02
Shares Outstanding (Basic)9.58B
Shares Outstanding (Diluted)9.84B

Key Highlights

  • 1Total net sales increased by 25% year-over-year to $37.96 billion for the three months ended June 30, 2017.
  • 2AWS segment continued its strong growth, with sales up 42% year-over-year for both the quarter and the six-month period.
  • 3Operating income declined to $628 million for the quarter, down from $1.29 billion in the prior year period, primarily due to increased operating expenses.
  • 4The company is acquiring Whole Foods Market, Inc. for approximately $13.7 billion, subject to customary closing conditions.
  • 5Free cash flow for the trailing twelve months ended June 30, 2017, increased to $9.7 billion, up from $7.7 billion in the prior year period.
  • 6International segment operating loss widened significantly to $724 million for the quarter, driven by increased operating expenses.
  • 7Cash and cash equivalents stood at $13.2 billion at the end of the period, with total assets reaching $87.8 billion.

Frequently Asked Questions

Amazon's sales growth in Q2 2017 was driven by increases in unit sales across its North America and International segments, supported by efforts to reduce prices, improve inventory availability, and expand selection. The AWS segment also contributed significantly with a 42% year-over-year increase in sales due to higher customer usage.

The decrease in operating income was primarily due to increased operating expenses across various segments, particularly in fulfillment, technology and content, and marketing. These investments are aimed at expanding the fulfillment network, developing new technologies and services, and supporting overall business growth, which impacted short-term profitability.

The acquisition of Whole Foods Market, Inc. for $13.7 billion represents a significant expansion for Amazon into the physical grocery retail sector. It allows Amazon to integrate its online capabilities with a well-established brick-and-mortar presence, potentially transforming its strategy in the grocery market.

Foreign currency exchange rate fluctuations had a negative impact on net sales and operating income. For Q2 2017, unfavorable foreign exchange rates decreased net sales by approximately $502 million and impacted operating income by $38 million (unfavorable). This was largely due to the strengthening US Dollar against currencies like the Euro and British Pound.