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Amazon Com Inc

AMZN
10-QFiled:July 30, 2021

Summary

Full summary

The Print

Amazon reported Q2 2021 net income of $7.8B ($15.12 diluted EPS) on total net sales of $113.1B, up 27% from $88.9B in Q2 2020.

Consolidated net sales increased 27% in Q2 2021 compared to the comparable prior year period, and management attributes North America and International sales growth primarily to increased unit sales, including sales by third-party sellers, driven largely by continued efforts to reduce prices for customers, including from shipping offers, and increased demand, partially offset by fulfillment network capacity and supply chain constraints. AWS sales growth primarily reflects increased customer usage, partially offset by pricing changes.

  • Total net sales rose 27% YoY to $113.1B, with AWS net sales up 37% and International up 36%, while North America grew 22%.
  • Operating income increased to $7.7B from $5.8B, and net income rose to $7.8B from $5.2B, with diluted EPS of $15.12 versus $10.30.
  • Operating cash flow for Q2 2021 was $12.7B versus $20.6B in Q2 2020, and cash capital expenditures were $13.0B versus $6.6B.
  • Management stated it incurred approximately $1.5 billion in COVID-19 related costs in Q2 2021 and expects net sales growth rate to decelerate in Q3 2021.

Results That Matter

  • Total net sales
    Current period
    $113.1B
    Prior period
    $88.9B
    Change
    +27.2%
    Sales increased 27% in Q2 2021 compared to the comparable prior year period; changes in foreign currency exchange rates impacted net sales by $2.5 billion for Q2 2021.
  • Operating income
    Current period
    $7.7B
    Prior period
    $5.8B
    Change
    +31.8%
    Operating income increased from $5.8 billion in Q2 2020 to $7.7 billion in Q2 2021.
  • Net income
    Current period
    $7.8B
    Prior period
    $5.2B
    Change
    +48.4%
    Net income rose to $7,778 million from $5,243 million in the prior-year quarter.
  • Diluted earnings per share
    Current period
    $15.1
    Prior period
    $10.3
    Change
    +46.8%
    Diluted EPS increased to $15.12 from $10.30, with weighted-average diluted shares of 514 million versus 509 million.
  • Basic earnings per share
    Current period
    $15.4
    Prior period
    $10.5
    Change
    +46.7%
    Basic EPS increased to $15.40 from $10.50 on weighted-average basic shares of 505 million versus 500 million.

Earnings Quality & Cash Conversion

Operating income of $7,702M includes stock-based compensation expense of $3,591M and depreciation and amortization of $8,038M. Other income (expense), net of $1,261M includes marketable equity securities valuation gains of $157M, equity warrant valuation gains of $939M, upward adjustments relating to equity investments in private companies of $31M, and foreign currency gains of $110M. The provision for income taxes of $868M for Q2 2021 included net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation and audit-related developments.

Value Drivers & Capital Allocation

Capital expenditures $14.3B (prior $7.5B) (selected cash-flow amount, not necessarily total capital investment).

Return on equity was 6.8% (prior 7.1%) (period net income / period-end equity, not annualized); return on assets 2.2% (period net income / period-end assets, not annualized).

Forward Signals

cautious

Third Quarter 2021 Guidance: Net sales are expected to be between $106.0 billion and $112.0 billion, or to grow between 10% and 16% compared with third quarter 2020, anticipating a favorable impact of approximately 70 basis points from foreign exchange rates. Operating income is expected to be between $2.5 billion and $6.0 billion, compared with $6.2 billion in third quarter 2020, assuming approximately $1.0 billion of costs related to COVID-19. This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded.

Known trends

  • We expect our net sales growth rate to decelerate in Q3 2021 compared to the increases we experienced in 2020 and the first quarter of 2021.
  • We expect COVID-19 related costs, as well as the effects of the pandemic on fulfillment network capacity and supply chain constraints, to continue into all or portions of Q3 2021.
  • We expect spending in technology and content to increase over time as we continue to add employees and technology infrastructure.

Subsequent events

  • On July 16, 2021, the Luxembourg National Commission for Data Protection (the “CNPD”) issued a decision against Amazon Europe Core S.à r.l. claiming that Amazon’s processing of personal data did not comply with the EU General Data Protection Regulation. The decision imposes a fine of €746 million and corresponding practice revisions.
  • In July 2021, the European Commission appealed the decision to the European Court of Justice.

“we expect our net sales growth rate to decelerate in Q3 2021 compared to the increases we experienced in 2020 and the first quarter of 2021”

— Amazon.com, Inc. (MD&A)

“We expect COVID-19 related costs, as well as the effects of the pandemic on fulfillment network capacity and supply chain constraints, to continue into all or portions of Q3 2021.”

— Amazon.com, Inc. (MD&A)

Risks

2 source-verified filing excerpts. 2 items withheld because the evidence could not be matched. Selected excerpts are not a complete risk inventory.

Filing excerpt 1

EvidenceThe complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages, and injunctive relief.

Filing excerpt 2

EvidenceSouth Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers.

Segments

SegmentRevenueOperating IncomeRevenue ChangeCommentary
North America$67.5B$3.1B+21.9%5% operating margin — Management attributes the increase in North America operating income primarily to increased unit sales, including sales by third-party sellers, and advertising sales and lower COVID-19 related costs, partially offset by increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, and growth in certain operating expenses.
International$30.7B$362.0M+35.5%1% operating margin — Management attributes the increase in International operating income primarily to increased unit sales, including sales by third-party sellers, and advertising sales and lower COVID-19 related costs, partially offset by increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, and growth in certain operating expenses.
AWS$14.8B$4.2B+37.0%28% operating margin — Management attributes the increase in AWS operating income primarily to increased customer usage and cost structure productivity, partially offset by increased spending on technology infrastructure, payroll and related expenses, and software licensing expenses, all of which were primarily driven by additional investments to support the business growth, and reduced prices for our customers.

Balance Sheet & Liquidity

Leverage: Identified debt as of 2021-06-30 (carrying amount): noncurrent long-term debt of $50.3B. Not separately reported in this filing's standardized data: current portion of long-term debt; short-term borrowings. Total debt, net debt and debt-to-equity are therefore not stated.

Liquidity: Cash, cash equivalents, and marketable securities at fair value were $84.4 billion and $89.9 billion as of December 31, 2020 and June 30, 2021. The company had no borrowings outstanding under the Credit Agreement, $725 million of borrowings outstanding under the Commercial Paper Program, and $503 million of borrowings outstanding under the Credit Facility as of June 30, 2021, and $5.8 billion of unused letters of credit.

Cash flow: Cash flow — operating $12.7B, investing $-22.1B, financing $15.6B.

Working capital: Current assets $140.8B vs. current liabilities $117.8B (current ratio 1.20x). Prior reported balance sheet as of 2020-12-31: $132.7B vs. $126.4B (1.05x).

Maturities & covenants

  • We are not subject to any financial covenants under the Notes.
  • Long-term debt principal and interest commitments total $76,628 million as of June 30, 2021, including $1,772 million for the six months ending December 31, 2021.
  • The Credit Facility is available until October 2022, bears interest at the London interbank offered rate (“LIBOR”) plus 1.40%, and has a commitment fee of 0.50% on the undrawn portion.

Notable Footnotes

ItemImpact
MGM Holdings Inc. acquisition agreementIn May 2021, Amazon entered into an agreement to acquire MGM for approximately $8.5 billion, including MGM's debt, subject to customary closing conditions, expected to be funded with cash on hand.
Inventory valuation sensitivityFor every 1% of additional inventory valuation allowance as of June 30, 2021, the company would have recorded an additional cost of sales of approximately $275 million.
AWS performance obligationsCommitments not yet recognized for contracts with original terms exceeding one year were $60.7 billion as of June 30, 2021, with a weighted-average remaining life of 3.6 years.
Stock-based compensation unrecognized costAs of June 30, 2021, there was $18.3 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements, with a remaining weighted-average recognition period of 1.2 years.

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AI-generated. Informational only, not investment advice. May be incomplete or contain errors. The authoritative source is always the original SEC filing.