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Amazon.com (NASDAQ: AMZN) recently passed an important milestone, becoming just the second U.S. company in history to top a $1 trillion market cap. Part of what drove the company to those dizzying heights was the impressive results Amazon has produced so far this year. The company grew revenue an impressive 41% year over year in the first half of 2018, but Amazon Web Services (AWS) is doing even better, up 48% compared to the first six months of last year. It's also improved operating margins across each of its business segments, while quietly growing another business (B2B commerce) to $10 billion per year.
All signs point to another strong performance when Amazon reports the financial results of its third quarter after the market close on Thursday, Oct. 25, but let's look at Amazon's most recent results and see what the company will need to do to continue its upward momentum.
Image source: Amazon.
Outlook cloudy -- and that's a good thing!
For the second quarter, Amazon reported revenue of $52.9 billion, up 39% year over year. Operating income of $2.98 billion came in at nearly double the company's forecast for $1.5 billion. Profitability soared, with net income of $2.5 billion producing earnings per share of $5.07, up 1,168% compared to the prior-year quarter.
Much of this earnings outperformance was a function of the company's operating margin, which improved across the board on a trailing-12-month basis. AWS continues to draw most of the headlines, with revenue of $6.1 billion this quarter, an increase of 49% year over year, and growing to 11.5% of Amazon's total second-quarter sales. With juicy operating margins approaching 27%, this cash cow is helping finance the company's international expansion. Watch for continued improvement in this metric over time.
Amazon revealed that its recent focus on its advertising business is bearing fruit, exceeding $2 billion in each of the past two quarters, while its business-to-business (B2B) operations are expected to top $10 billion annually.
The big wild card in this quarter will the results of Amazon Prime Day, its customer loyalty sale that was held for 36 hours beginning on July 16. The company typically keeps the financial results of its annual event close to the vest, but some estimates placed Amazon's sales at $2.4 billion last year, and projections are upwards of $3.4 billion this time around. When the company produced a blowout third quarter last year, CFO Brian Olsavsky chalked it up to Prime Day, saying, "I wouldn't point to anything other than the Prime Day pickup ... it was stronger than probably I anticipated."