There is a first time for everything, and yesterday was the first time that Amazon shared an earnings call that didn’t completely wow analysts with record-breaking growth. Though the company still reported increased numbers, it fell short of analysts’ expectations with only 3.6% profit growth year-over-year, compared to doubling last quarter. Shortly after the call, Amazon’s stock began to drop.
Google and Facebook also held earnings calls yesterday, and each held its fair share of surprises for Wall Street analysts. Google’s ad sales showed impressive growth, and Facebook outperformed expectations despite recent regulatory wrist-slaps regarding user privacy.
Although yesterday’s numbers are largely being reported as underwhelming, Amazon is still on pace with its competitors. Ad revenue growth continues to beat the duopoly, and with significant upfront OTT video investments from major clients starting to ramp, Q3 and Q4 are tracking to be massive. In this post, we’ll share takeaways from the three calls.
Amazon’s Q2 Numbers and Updates
Second-quarter earnings totaled $2.6 billion, or $5.22 a share up from $5.07 a year ago. Analysts on average expected to see $5.56 a share. Revenue was $63.4 billion, up from $52.9 billion a year ago, and Amazon Web Services accounted for a whopping $8.38 billion of revenue.
In a call on Thursday evening, Chief Financial Officer Brian Olsavsky reassured investors by unpacking the meaning behind the numbers. One-day delivery does come with a hefty price tag (over $800 million, actually), and that will reflect in smaller profit numbers for 2019.
But more people than ever are spending time with Amazon, not just shopping on their site, but in areas like grocery and entertainment. Numbers aside, no one seems to think Amazon has lost their foothold at the top of the tech giants. According to CNBC, Wall Street analysts still encourage investment in Amazon.
“With revenue growth accelerating, we continue to believe AMZN represents one of the best risk/rewards in Internet,” analysts at Goldman Sachs said. Analysts at Evercore ISI said, “While AMZN’s investment thesis was migrating to one of growing profitability from strong top-line growth, we think this print highlights that AMZN’s revenue growth acceleration story is far from dead.”
Google’s Q2 Earnings Call
If Amazon’s call disappointed the analysts, Google’s earnings report surprised them. After a weak report in Q1, Google announced that ad sales for the second quarter totaled $32.6 billion, an increase of 16% over last year. Prior to Thursday’s results, Google’s ad revenue has decelerated year-over-year since Q2 of 2018, and this growth quieted investors’ worries of a persistent slowdown in ad sales, which is Alphabet’s core business.
Facebook’s Q2 Earnings Call
Facebook reported a revenue increase of 28% over last year, despite suffering a controversial year in the press and a recent $5 billion settlement with the Federal Trade Commission announced on Wednesday.
In The Wall Street Journal, analyst Mark Mahaney of RBC Capital Markets summarized perfectly why these regulations may not be a huge deal for Facebook. “Google has annually paid $2 billion to $3 billion to regulators,” he noted. “For Facebook, I won’t treat it as a recurring expense until it becomes one.”
Of course, tech giants should not be able to get away with whatever they want as long as they can afford the fines… but for now, that seems to be the case. Unless Facebook is truly feeling the heat, they may continue with business as usual and not let the threat of lawmakers get in the way of their growth.
The year ahead will be an interesting one for Facebook. With new guardrails up in the form of regulatory action, the company can now focus in on specific areas of the business to grow. As Mark Zuckerberg said, “Guidance from regulators… sets clear expectations and gives us a foundation to build on.”
Reception for Amazon’s earnings call yesterday was lukewarm, but overall the business is still moving forward at an excellent pace. As we mentioned in our post-Q1 blog, bare numbers don’t always tell the full story. The idea that you must invest, test and learn in innovation – like one-day shipping for over 100 million Prime members – has been baked into the ethos of Amazon since the beginning. If growth continues to be slow over the next two quarters, it’s safe to assume the money is being invested right back in to the company to keep Amazon neck-and-neck with its competitors.