Amazon.com Inc. (NASDAQ: AMZN) released its first quarterly report for the 2019 financial year with the quarter ending 31 March 2019.

Amazon reported earnings blew forecast earnings out of the water which helped the company to overtake Apple Inc. (NASDAQ: AAPL) to become the second most valuable company in the world behind Microsoft Corporation (NASDAQ: MSFT) at the time of writing.

About Amazon

The global e-commerce behemoth Amazon which was founded by Jeff Bezos probably needs no introduction. Its founder Jeff Bezos has become a billionaire by applying a “flywheel” approach to business. Basically, the flywheel approach means low prices attract more customers visits, which leads to more sales that attract commission paying third-party sellers to the website. This, in turn, allows Amazon to get more out of fixed costs and drive greater efficiencies which allows them to lower prices even further again.

Key Results

The most pleasing thing to investors was probably the earnings which came in at USD$7.09 per share against expectations of USD$4.72 a share according to analysts surveyed by Refinitiv. Earnings 50% higher than forecast is a pleasant surprise to almost anyone. Key results included:

  • Sales up 17% to USD$59.7 billion compared to USD$51 billion in 1Q18
  • Operating income up 132% to USD$4.4 billion compared to $1.9 billion in 1Q18
  • Net income up 125% to USD$3.6 billion (earnings of USD$7.09/share) compared to USD$1.6 billion (earnings of USD$3.27/share) in 1Q18

Over the past 12 months, on the cash flow side of things Amazon said:

  • Operating cash flow increased 89% to USD$34.4 billion compared to USD$18.2 billion
  • Free cash flow increased 215% to USD$23 billion

Under Amazon’s definition of free cash flow, it calculates it as “purchases of property and equipment, net of proceeds from property and equipment incentives”. I think this is a little misleading as net cash provided by operating activities was only USD$~1.8 billion and as usual, they had a negative cash flow for the quarter after investing and financing activities of USD$~8.6 billion.

Are Amazon Shares Cheap?

Amazon has its fingers in so many pies, it would probably be easier to list what it isn’t involved in. It is incredibly dominant and I love the cheap prices as a customer and the efficiency in delivering goods. However, as an investor, I have never been able to get any confidence in how or when they will start to convert their global dominance into material cash flow which makes it a tricky company to value.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclaimer: at the time of writing, Andrew does not own shares in any of the companies mentioned.