Amazon Web Services is the Driver Behind Another Great Amazon Quarter

Amazon.com (Nasdaq: AMZN) reported earnings after the market closed on Thursday and it was another great quarter for the internet giant:

• Net sales of $51.0 billion, up from $35.7 billion (43% increase year-over-year)
• Operating income rose to $1.9 billion, up from $1.0 billion (92% increase YOY)
• Earnings of $3.27 per share, up from $1.48 per share (121% increase YOY)

If you’ll recall from earlier this week, I was primarily concerned with the performance of Amazon Web Service (AWS), as its high-margin business line would help overcome the margin shortcomings felt in the retail side of things. AWS did not disappoint, with total sales during the quarter of $5.4 billion, or just over 10% of total sales.

The operating income on these sales, however, more than doubled the retail sales of the company, totaling $1.4 billion, or 72.7% of the total operating income of the company! Furthermore, while the company had total gross margin of 3.78%, AWS was nearly eight times higher at 25.73%, proving that the true driver of performance for Amazon is the higher margin Amazon Web Services.

But we shouldn’t judge a company solely on what they have done in the past. An investment should be considered based on what it looks like the future of the company holds. Unlike some other companies, Amazon doesn’t publish full-year guidance with their results, and the guidance published for its fiscal second quarter is fairly close to these first quarter results – sales of between $51 billion and $54 billion and operating income between $1.1 billion and $1.9 billion – so this will be the rare occasion where I look elsewhere for projected full-year results.

According to Yahoo! Finance, the average analyst estimate for full-year earnings for Amazon is $8.38 per share. Should Amazon hit that earnings target, and based on its current P/E (approximately 250), we should expect a share price of around $2,100 at the end of its fiscal year. This represents about 33% upside from current prices, which most investors should be happy with, though the price per share could be a little daunting for most investors. However, should you have the ability, this may be a stock that would be worth purchasing in fractional shares, or you can hope for a stock split from the company… which is something that the company has never done.

These results are great for Amazon and great for my investment, but I will continue to keep an eye on this company nonetheless. Amazon Web Services is truly driving this company forward, and it may only be a matter of time before Amazon becomes the first trillion dollar market cap company in the U.S.

Until next time…

Disclosure: I have purchased shares of Amazon on behalf of my mother and have no intentions of adding or selling shares over the next 30 days. Please read my full disclosure here.