Amazon.com Inc. (Nasdaq: AMZN) stock surged to finish up 3.87% at close today (Thursday) ahead of its Q1 2014 earnings reveal. Shares continued to rally in after-hours trading, up another 0.8% around 4:45 p.m. EDT.
Spoiler alert: There were no big surprises. In fact, Amazon nearly exactly matched Wall Street expectations and slightly beat revenue projections.
"I don't care whether Amazon misses today, I just care that it's the company's status quo," Money Morning Chief Investment Strategist Keith Fitz-Gerald said. "With Amazon, I'll take anything but no big surprises - only if there's a big surprise will I be concerned."
The Seattle, Wash.-based retail giant was projected to report earnings per share (EPS) of $0.23 on revenue of $19.4 billion for a 20.9% increase year over year, according to Thomson Reuters. Amazon came through with EPS of $0.23 per share on $19.74 billion in net sales, compared to $16.07 billion in first-quarter 2013.
"We get our energy from inventing on behalf of customers, and 2014 is off to a kinetic start," Amazon.com Founder and Chief Executive Officer Jeff Bezos said in a press release today. "Our device team launched Fire TV, offering great content, including our recently announced exclusive deal with HBO, and innovative features like unified voice search, which we're delighted is being adopted by so many new partners, including Netflix, HBO Go, Hulu Plus, Crackle and Showtime Anytime. The team is working hard to keep Fire TV in stock. Our retail team launched Prime Pantry, a new option available only to Prime members offering exclusive access to everyday essentials in non-bulk sizes - ranging from breakfast foods and popular soft drinks, to cleaning and personal care items."
Amazon additionally announced that streams on Prime Instant Video nearly tripled year over year.
Prior to today's earnings report, Amazon has missed on earnings estimates four quarters out of the last five, but averages a one-week post-earnings gain of 2.5%. Its shares are down around 15% in 2014, but are up approximately 300% over the last five years; in 2013 alone, AMZN stock went up 62%.
Fitz-Gerald was keen to watch two areas in the company's release today to hint at Amazon's future profitability: Amazon's shipping model and its sales.
Here's how the company did - and what to do with AMZN stock based on today's earnings...
Amazon is spending heavily, expanding its network of shipping warehouses, cloud-computing services, and hardware like Fire TV. The expenditures suck up much of the company's revenue each quarter, leaving slim earnings. However, strong sales continue to support Amazon's growth.
First-quarter 2014 net sales increased 23% to $19.74 billion, compared with $16.07 billion in first-quarter 2013. Excluding the $10 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 23% compared with first-quarter 2013.
In the last quarter (Q4 2013), net sales saw about the same big increase, up 22% to $21.27 billion compared to the same quarter a year before.
Amazon's shipping costs have jumped 66% in the last two years. In its fourth quarter, net shipping expenses increased a whopping 19% to $1.21 billion.
Combatting this shipping issue head-on is a top concern, and the company recently made a move to mitigate pressure from rising shipping expenses.
On March 13, Amazon announced a price hike for its Prime membership, a subscription service that includes free two-day shipping. AMZN stock has tumbled around 9% since the announcement.
The press release today did not address any changes to Amazon's shipping model. It's likely that the company is relying on its Prime price hike to make up for inflating shipping costs, and it's too soon to tell if the strategy is working.
Our experts have good things to say about CEO Jeff Bezos and Amazon.com.
"These guys leave no stones unturned for the next dollar they can bring in," said Money Morning Defense & Tech Specialist Michael A. Robinson. "Amazon is constantly upselling, cross-selling, and looking for new products, and they're great at it. Once this franchise is built out, there are billions of dollars in cash flow that will fall to the bottom line."
Of Bezos, Robinson said "[he] is going to go down in history as one of the great tech innovators of all time."
Fitz-Gerald agrees - with a caveat.
"Bezos is innovative, has a good handle on his business, and the moxie to create something from nothing," Fitz-Gerald said. "Those are all favorable characteristics of what I want in a CEO right now."
"Amazon is so rich compared to its earnings. I think it won't go away anytime soon, and it's going to change the world - but it makes you think twice about investing, because if the company does ever take a hit, it's the investors that would bear the brunt of it."
No analysts list Amazon as a "Sell" - 24 out of 29 analysts have it as a "Buy" or better. Gas prices are rising in the United States, up 2.4% over the past week alone. And you can bet that as we move into the summer season, the worst is yet to come. The climb means gains for this sector - and for investors...
