The law of large numbers is catching up to Amazon.com.
As it gets more massive, revenue growth at the e-commerce giant is slowing down. Amazon grew its top line by 22% in the first quarter, compared with growth of 34% a year earlier, falling slightly short of forecasts. That continued a trend of deceleration that has emerged the past few quarters.
But amid that slowing, Amazon's gross margin is expanding. It grew by more than a third compared with the previous year to 26.6%, a record level. One cause is more sales happening through third-party sellers. Amazon only books the portion of these sales that it receives. That means lower revenue per unit, but significantly higher margins.
Also helping profitability were growth in its cloud-computing division Amazon Web Services, as well as lower shipping costs. The latter was aided by the opening of more distribution centers and a shift toward sales of more high-margin digital products like music, e-books and videos.
If revenue growth continues to slow, as seems likely, the challenge for Amazon will be to grow margins even more quickly. That will be vital to satisfy investors, many of whom bought into it as a fast-growing Internet stock.
Years of top-line growth have pushed Amazon's valuation to well above 100 times forward earnings estimates, a level that could be tough to maintain as it starts to mature. Indeed, shares fell more than 7% Friday after Amazon's guidance for second-quarter revenue and operating income came in below consensus.
Of course, Amazon may find another way to spur sales such as the set-top box it is developing for streaming video content. But that would likely come at the expense of margins.
For investors, it is time to recognize that Amazon's headiest growth days may be past.
Source: http://online.wsj.com/article/SB10001424127887324743704578446950479320458.html
Note:
As it gets more massive, revenue growth at the e-commerce giant is slowing down. Amazon grew its top line by 22% in the first quarter, compared with growth of 34% a year earlier, falling slightly short of forecasts. That continued a trend of deceleration that has emerged the past few quarters.
But amid that slowing, Amazon's gross margin is expanding. It grew by more than a third compared with the previous year to 26.6%, a record level. One cause is more sales happening through third-party sellers. Amazon only books the portion of these sales that it receives. That means lower revenue per unit, but significantly higher margins.
Also helping profitability were growth in its cloud-computing division Amazon Web Services, as well as lower shipping costs. The latter was aided by the opening of more distribution centers and a shift toward sales of more high-margin digital products like music, e-books and videos.
If revenue growth continues to slow, as seems likely, the challenge for Amazon will be to grow margins even more quickly. That will be vital to satisfy investors, many of whom bought into it as a fast-growing Internet stock.
Years of top-line growth have pushed Amazon's valuation to well above 100 times forward earnings estimates, a level that could be tough to maintain as it starts to mature. Indeed, shares fell more than 7% Friday after Amazon's guidance for second-quarter revenue and operating income came in below consensus.
Of course, Amazon may find another way to spur sales such as the set-top box it is developing for streaming video content. But that would likely come at the expense of margins.
For investors, it is time to recognize that Amazon's headiest growth days may be past.
Source: http://online.wsj.com/article/SB10001424127887324743704578446950479320458.html
Note:
Delta Ray is experienced web scraping consultant and writes
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very interesting , good job and thanks for sharing such a good blog.
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