10-QPeriod: Q3 FY2017

AMAZON COM INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 27, 2017For Securities:AMZN

Summary

Amazon.com, Inc. (AMZN) reported its third-quarter 2017 financial results, showing continued strong revenue growth across its segments. Total net sales increased by 34% year-over-year, driven by robust performance in North America and sustained growth from Amazon Web Services (AWS). Despite top-line expansion, operating income saw a decline due to significant investments in fulfillment, technology, and marketing, as well as the impact of the Whole Foods Market acquisition. The company's balance sheet reflects substantial growth in assets, particularly property and equipment, and a significant increase in long-term debt, largely associated with the Whole Foods acquisition. Cash flow from operations remained strong, although investing activities showed a substantial outflow due to acquisitions and capital expenditures. Investors should note the ongoing strategic investments aimed at long-term market share expansion, which are currently impacting near-term profitability.

Financial Highlights

51 data points
Beta

Revenue

$43.74B

37.0% Gross Margin

Net Income

$256.00M

0.6% Net Margin

EPS (Diluted)

$0.03

Total Assets

$115.27B

Cash & Equivalents

$12.77B

Free Cash Flow

$3.78B

Financial Statements
Beta
Revenue$43.74B
Cost of Revenue$27.55B
Gross Profit$16.20B
Operating Expenses$43.40B
Operating Income$347.00M
Interest Expense$228.00M
Net Income$256.00M
EPS (Basic)$0.03
EPS (Diluted)$0.03
Shares Outstanding (Basic)9.62B
Shares Outstanding (Diluted)9.88B

Key Highlights

  • 1Total net sales surged by 34% year-over-year to $43.7 billion for the third quarter of 2017.
  • 2Amazon Web Services (AWS) continued its strong growth, with sales increasing by 42% year-over-year.
  • 3The acquisition of Whole Foods Market on August 28, 2017, contributed to a 35% increase in North America net sales.
  • 4Operating income decreased to $347 million in Q3 2017 from $575 million in Q3 2016, reflecting increased operating expenses.
  • 5Capital expenditures significantly increased, with purchases of property and equipment totaling $2.7 billion in Q3 2017.
  • 6Long-term debt saw a substantial increase, reaching $24.8 billion by September 30, 2017, primarily due to financing the Whole Foods acquisition.
  • 7The company recorded $9.4 billion in goodwill from acquisitions during the first nine months of 2017, largely from Whole Foods.

Frequently Asked Questions

The acquisition of Whole Foods Market, completed on August 28, 2017, significantly impacted Amazon's financials. It contributed to a 35% increase in North America net sales for the third quarter and added $8.985 billion in goodwill and $2.336 billion in intangible assets. The acquisition also led to an increase in long-term debt to fund the purchase.

The decrease in operating income was primarily due to increased operating expenses across various segments. Significant investments were made in expanding the fulfillment network, technology and content, and marketing efforts. These investments, coupled with the impact of the Whole Foods acquisition and related integration costs, outpaced the revenue growth, leading to lower operating income.

Amazon Web Services (AWS) continues to be a strong growth driver for Amazon. In the third quarter of 2017, AWS sales increased by 42% year-over-year, contributing $4.584 billion in revenue. The segment also demonstrated strong profitability, with operating income increasing to $1.171 billion for the quarter, reflecting increased customer usage and cost structure productivity.

Amazon guided for fourth-quarter 2017 net sales to be between $56.0 billion and $60.5 billion, representing growth of 28% to 38% year-over-year. This guidance anticipated a significant impact from Whole Foods Market and a favorable foreign exchange rate impact. Operating income was projected to be between $300 million and $1.65 billion, compared to $1.3 billion in the prior year's fourth quarter.