Amazon reported mixed results in its second-quarter earnings release on Thursday July 25th, failing to meet profit expectations while exceeding revenue forecasts.

The results show Amazon’s renewed investments into the company are paying off, driving sales growth at the expense of lower profit margins. Amazon’s shares, however, dropped over 2% in after-hours trading, as the company gave third-quarter profit guidance that fell well-below street estimates.

Here are the most important numbers:

  • EPS: $5.22 vs. $5.57, according to analysts surveyed by Refinitiv
  • Revenue: $63.4 billion vs. $62.5 billion, according to Refinitiv
  • AWS: $8.38 billion vs. $8.5 billion, according to analysts surveyed by FactSet

Amazon’s revenue jumped 20% from the year-ago period, a rebound from 16.8% in the first quarter. The recovery follows Amazon’s pledge to spend $800 million in the second quarter improving warehouses and delivery infrastructure as part of a plan to make one-day shipping the standard for Prime members. Analysts predict that shorter delivery times will lead to more frequent purchases and higher revenue.

Amazon’s net income of $2.6 billion was the lowest since the second quarter of last year, putting an end to a record profit streak of four straight quarters. The company forecast third-quarter operating income in the range of $2.1 billion to $3.1 billion, which is far lower than FactSet estimates of $4.4 billion. Chief Financial Officer Brian Olsavsky said on the July 25th earnings call that the company spent slightly more than $800 million on its expansion plans in the quarter.

CEO Jeff Bezos said in the earnings release that the change has resulted in “a lot of positive feedback” and “accelerating sales growth.”

Amazon Web Services, its most lucrative business, reported 37% growth, trailing analysts’ estimates and indicating that Microsoft is picking up steam. The growth in AWS, which provides computing and storage for corporations, schools and government agencies, slipped from 41% in the previous quarter.

In the “Other” category, which includes Amazon’s increasingly important online ad business, revenue climbed 37% to $3 billion. International sales grew 12% to $16.4 billion, down from last year’s 27% growth. Physical stores, which includes Whole Foods, remained roughly flat at $4.3 billion in sales.

Meanwhile, the company is facing heightened regulatory scrutiny, with antitrust officials in the U.S. and EU launching investigations into the company’s business practices. July 25th’s results, however, don’t include the impact of any potential regulations or penalties, Olsavsky said.

Earlier in July, Amazon held Prime Day, its biggest shopping event of the year. The company said it set another sales record during the two-day sales promotion, which is likely why Amazon’s third-quarter revenue guidance of $66 billion to $70 billion exceeded street estimates of $67.3 billion, according to FactSet.

During the second-quarter, Amazon rolled out a new round of discounts across hundreds of products at its Whole Foods stores, while expanding the grocery chain’s delivery footprint to more regions in the U.S. The company also announced a partnership with Rite Aid that allows customers to pick up their Amazon packages in-store.

Amazon shares have climbed 32% this year, outpacing the 20% gain for the S&P 500.

Source: CNBC