Amazon Is On a Mission to Take Over the World, and It’s Working
Shares of the three-headed (Internet-technology-media) hydra that is Amazon.com Inc. (NASDAQ:AMZN) closed Thursday’s regular session up 3.87 percent at $337.15 per share and jumped as much as 2 percent higher in post-market trading after the company reported strong first-quarter results. Cutting straight to the chase, net sales increased 23 percent on the year to $19.74 billion, above the mean analyst estimate of $19.43 billion. Net income of $108 million, or 23 cents per diluted share, up 27.8 percent on the year, was in-line with the mean analyst estimate.
Although net income remained relatively small — Amazon is working with an operating margin that is 0.7 percent of worldwide sales, down from 1.1 percent on the year — the considerable jump in net sales is, well, considerable. Amazon logged 22 percent net sales growth over the trailing twelve-month period (Amazon’s financial wizards are partial to the TTM terminology), and worldwide net sales of $78.1 billion over the last year.
With operating margins that are just a fraction of a percent, Amazon’s explosive top-line growth is tantalizing to investors. This is evidenced by the fact that the stock is trading at an incredible 571.44 times TTM earnings. As long as there’s no reason to believe that margins will turn chronically negative, it can probably maintain that price level. Given the company’s aggressive roll out of new products and services, it seems reasonable to expect strong top-line growth moving forward. Moreover, even small increases in margin will have a dramatic impact on earnings, and investors are clearly willing to pay for this potential.