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Amazon.com (NASDAQ: AMZN) released a powerful second-quarter 2018 earnings report on Thursday, July 26. The e-commerce and cloud-computing titan's revenue soared 39% year over year to $52.9 billion, while earnings per share (EPS) increased more than 12 times to $5.07.
As it did in the previous two quarters, the bottom-line result trounced Wall Street's expectation. Analysts were looking for $2.50 per share. These huge earnings beats have helped drive Amazon stock up nearly 75% over the one-year period through July 30. The S&P 500 has returned 15.6% over this period.
Earnings releases only tell part of the story. Here are three key things management shared on the earnings call that investors should know.
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The company's "multimillion-dollar" advertising business is humming along
From CFO Brian Olsavsky's remarks:
[Advertising is] now a multibillion-dollar business for us. We're seeing strong adoption across a number of fronts -- Amazon vendors, sellers, authors, as well as third-party advertisers who want to reach Amazon customers.
Olsavky said on last quarter's earnings call that advertising revenue accounts for the "majority" of the "other revenue" line item in the company's supplemental financial information. This line item was $2.19 billion for the second quarter, so it's probably safe to assume that ad revenue was somewhere north of about $1.5 billion. While this may seem relatively small -- it's roughly 3% of Amazon's total revenue -- there's little doubt that this business contributes an outsize amount to earnings. Digital advertising, in general, is a high profit-margin business. (Google parent Alphabet's and Facebook's financial results attest to this fact.)
Here's the bigger gem from Olsavsky that investors should keep in mind (emphasis mine):
[W]e're focused on our measurement capabilities, so advertisers understand what outcomes they're driving on our properties. And we think that we're uniquely positioned to show them the direct benefit of their advertising.
Given the nature of Amazon's core business -- an online retailer -- it is better positioned, in my opinion, than Alphabet, Facebook (the two big players in the space), or just about any other company involved in digital advertising to show advertisers the direct benefit of their advertising. This fact makes it likely that the company's ad business will continue its brisk growth. On this note, we can't know exactly how fast it's growing, but it's likely somewhere in the ballpark of 64% year over year, as that's how much the other line item increased in the quarter, after we adjust for an accounting change.