Amazon (NASDAQ: AMZN) may not be as strong a company as some people think. Despite, all the news stories about the Everything Store’s relentless growth; its first-quarter earnings report was a mixed bag.
Two often neglected numbers stood out when I went over Amazon’s financials: cash from operations and cash and short-term investments. Both of those numbers actually fell and one of them; cash from operations, could indicate some future problems.
Amazon has Less Cash
Amazon’s cash from operations reached a high of $11.92 billion in December 2015, but fell to $11.26 billion in March 2016. This means that the amount of cash Amazon ran through its ecosystem fell by $70 million during the first quarter. That might just be a post-holiday drop off, but it marks the first time in a few years that number has dropped off.
Amazon’s cash from operations grew by $5.078 billion during 2015, rising from $6.842 billion in December 2014 to $11.92 billion a year later. This could indicate that there are some limits to Amazon’s growth, and it may have reached them.
Another dramatically rising number at Amazon also took a nosedive during the first quarter. Its cash and short-term investments hit an all-time high of $19.81 billion in December 2015; that fell to $15.86 billion in March.
Okay, Amazon still has an astronomically high amount of cash in the bank for a retailer, but it still has less float. The good news is that money could have spent on something constructive like paying down debt or building infrastructure, so I will be interested to see how much Amazon has in the bank when it reports its next set of numbers in July.
Amazon’s Income is Going Up
There was some very good news in Amazon’s numbers, its net income did shoot up, rising from $596 million in December to $1.66 billion in March an increase of $594.16 million. Therefore, Amazon’s net income nearly doubled in one quarter.
The increase was even better over a year ago in March 2015 when Amazon reported a net income of -$406 million. That means Amazon’s net income increased by $2.066 billion over the past year. So the company is making more money from its operations even as it generates less cash.
The other great news was in revenues which increased by $6.41 billion during the first quarter. Amazon reported revenues of $107.01 billion at the end of 2016, and $113.42 billion in March.
Amazon Enters the Big Six
This means Amazon has overtaken Kroger (NYSE: KR) as America’s sixth largest publicly traded retailer in terms of revenue. The big six are currently Walmart Stores Inc. (NYSE: WMT) with $482.13 billion in revenue, CVS Health (NYSE: CVS) with $153.29 billion in revenue, Costco Wholesale (NASDAQ: COST) with revenues of $117.27 billion, Walgreen Boots Alliance (NASDAQ: WBA) with revenues of $116.53 billion and Amazon.
Kroger which reported $109.83 billion worth of revenue on January 31, 2016, might over take Amazon it fully absorbs its recent acquisition of Roundys. Roundys reported $4.03 billion in revenue in its last earnings report as an independent company in June 2015. That and Kroger’s organic growth could give it a revenue figure of around $114 billion for the next earnings report.
Yet Amazon will probably overtake Kroger again if it can report another $6 billion quarter. At least in terms of revenue growth, Amazon looks unstoppable right now.
Amazon Looks Unstoppable
It looks like Jeff Bezos has built an unprecedented revenue-generating machine. One division alone; Amazon Web Services or AWS, saw its revenues increase by 64% during the first quarter according to Reuters. Web Services generated around $2.6 billion in revenue.
Media revenue grew by 8% in 2015 at Amazon; climbing to $3.2 billion for the first time, the company’s senior Vice President and Chief Financial Officer Brian T. Olavsky revealed during the April 28, earnings call. North American revenue grew by 27%, international revenue grew by 24% and worldwide revenue grew by 29%.
It looks as if all the gambles that Bezos has taken, are paying off big time. Amazon is growing, and making more money. Worldwide revenues were $29.1 billion during first quarter, North American revenues were $17 billion and international revenue was $9.6 billion.
My take is that Amazon’s relentless rate of growth will continue for the foreseeable future. I cannot see it stopping with revenue growth like that. Amazon is on track to becoming one of the world’s largest and richest companies yet it is still a lousy investment.
Despite all the revenue it is creating Amazon is still a terrible investment because its stock price is imbecilic. Even with the growth, there’s no way to justify the $656.60 share price it was fetching on April 29, 2016. If you want to make money from Amazon, sell through it, the market it had created is tremendous and growing, do not invest in it.
Disclosure: your friendly neighborhood blogger conducts retail sales through Amazon.com and recently sold a stake in Kroger.