Amazon reported Q1-2017 earnings, which was a text book display of growth from Amazon. Overall sales grew 24%, led by Amazon Web Services growing 43% compared to the prior period, North America Retail and International Retail notching up yet another double-digit growth quarter, with operating margin in North America staying close to 3% and the international segment posting an operating loss.
If you look at the past few years of Amazon’s quarterly revenues, you will see this pattern repeating over and over – AWS inevitably posts strong revenue growth and high operating margins, North America will come in second with strong revenue growth and decent margins, while International segment typically posts double-digit growth, but less than North America and ending up with an operating loss.
This quarter was no different.
Revenue growth, as usual, was strong across the board. Amazon Web Services continues to grow strongly as it recorded 43% growth over the prior period to post $3.661 billion in quarterly revenues with an operating margin of 24.3%, slightly less than the above-26% the company posted in the past two quarters. AWS is getting bigger and bigger, and their revenue growth rate is slowly edging lower, as you can see from the graph below.
North America retail continues to be a big winner for the retailer. There is competition from every angle possible, with brick and mortar companies pushing really hard to improve their online sales. Despite the competition, Amazon continues its above 20% growth run in this segment, quarter after quarter.
What should worry Amazon competitors the most is the consistency of its growth in North America. As you get bigger in size, your growth rate should come down slowly – just look at the way it has been coming down for Amazon Web Services.
But North America retail has been extremely consistent. Amazon has now made $83.781 billion in sales during the last four quarters from this segment. If they stay in the 20% to 25% growth range, as they have done in the last few years, they will be at $100+ billion in sales from North America around this time next year.
International segment continues to grow, and continues to bleed operationally. Amazon needs scale before it can start thinking about margins in this segment. They are now operational in more than ten countries around the world, with few more countries such as Australia, Singapore and UAE added to the list this year.
International segment took a huge beating due to the stronger dollar, as net sales during the first quarter actually grew 21% when you exclude currency fluctuations.
Nevertheless, Wall Street will be happy that Amazon blew past its estimates. The company reported earnings per share of $1.48 and revenues of $35.7 billion, much better than Wall Street forecasts for $1.12 in earnings and $35.3 billion in revenues.
Expect that performance to be rewarded handsomely by Mr. Market this morning, for the earnings beat, but remember that this is much more than a strong quarter. It is a validation of Amazon’s business model, and a clue to its growth sustainability.