As I read the earnings results from Amazon (AMZN) last night, I was struck with how the company continues to push against conventional wisdom, and that publicly traded companies must focus on the bottom line at all costs.
I’ve witnessed major businesses cut back on administrative costs, marketing, and even research and development to post earnings above Wall Street consensus. It often works to move the stock higher, but along the way, true fundamental underpinnings deteriorate.
Jeff Bezos and company bucked the system out of the gate, and after trading on earnings for a few quarters, the company is back to building for world domination - this time in plain sight as regulators around the world circle their wagons and prepare their assault.
Amazon shares plunged after its financial results were released. However, something tells me it’s a temporary condition, as the company is willing to live while keeping an eye on a much bigger prize: World Domination.
Amazon Spending (investments):
- Technology & Content: $9.07 billion +25%
- Fulfillment: $9.27 billion +17%
- Marketing: $4.29 billion +48%
The company announced it will increase its salesforce three-fold over the next three years. In many ways, Amazon and its CEO Jeff Bezos reminds me of the iconic photo by Lewis Wickes Hine’s “Powerhouse Mechanic,” but on a much larger scale.
There is the determination, the sense of power, and the sense of accomplishment. The stock got whacked, but that’s nothing new. What is new is a return to focus on top-line revenue and building a powerhouse that might be too big to dismantle.
Spelling Out Success: Alphabet
Meanwhile, Alphabet (Google) focused on lower cost and fatter margins, and Wall Street loved the results:
- Traffic Acquisition Costs (TAC): 7.24 from 7.27
- Paid Clicks: +28%
- Cost per Paid Click: -11%
The company saw ad revenue surge to $32.6 billion from $28.09 billion, and earnings of $14.21 against consensus of $11.30.
Alphabet has its own powerhouse building projects, including YouTube, which was the second-largest contributor to revenue growth (this asset is why this stock must remain in any 401K).
Other Powerhouse Financial Results:
Intel (INTC)
- $16.51 billion against consensus of $15.70
- Client Computing Group: $8.84 billion, estimate $8.13 billion
- Data Center: $4.98 billion, estimate 4.89 billion
- $1.06 earnings per share against consensus of $0.89
Starbucks (SBUX)
- $6.82 billion revenue against consensus of $6.67
- Cloud revenue: $6.18 billion from $4.43 billion year-to-year
- $0.78 earnings per share versus consensus of $0.72
Additional Winners
- Mattel (MAT)
- MGM Resorts (MGM)
- LogMeIn (LOGM)
- Flextronics (FLEX)
Portfolio Approach
We’ve issued more profit alerts in the model portfolio.
Communication Services | Consumer Discretionary | Consumer Staples |
1 | 4 | 1 |
Energy | Financials | Healthcare |
1 | 2 | 1 |
Industrial | Materials | Real Estate |
2 | 3 | 1 |
Technology | Utilities | Cash |
3 | 0 | 1 |
Today’s Session
More earnings results are out this morning.
McDonalds (MCD)
Revenue and earnings were okay, but same store comparable sales and pricing power improved.
McDonalds 2Q 2019 Comp Sales | Actual | Estimate |
United States | 5.7% | 4.5% |
International | 6.5% | 5.1% |
- Beat on top and bottom lines
- Revenue $841 million estimate $829.1 million
- Earnings per share $0.20 estimate $0.19
- Monetized DAU 139 million +14%
Guidance was a little light, but like its larger rivals, the company is increasing investments to grow presence in health and conversation.
GDP
The U.S. economy grew in the second quarter as higher consumer spending offset a decline in business investment. Gross domestic product (GDP) increased 2.1% (adjusted for seasonality and inflation) according to the Commerce Department.