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AMZN Earnings Confirm Amazon’s Dominance, Though Stock Wavers

By U.S. News & World Report

Amazon.com (ticker: AMZN) posted major beats on both earnings and revenue on Thursday, although shares of AMZN stock didn’t jump in quite the same way. Third-quarter guidance was also higher than expected.

Earnings per share came in at $1.78, an increase from 19 cents in the same quarter last year, while revenue was up 31 percent to $30.4 billion. Amazon and Alphabet (GOOG, GOOGL), which also posted a commanding beat Thursday afternoon, round out a week of high-profile earnings releases from some of the biggest names on Wall Street.

Analysts were expecting Amazon to report EPS of $1.11 on revenue of $29.55 billion.

“Amazon has not only established a strong foundation, namely with Amazon Prime and its Web Services, but also continues to invest in fulfillment centers, video content and data hubs that make them a more structurally profitable and diversified business,” says James Gellert, CEO of Rapid Ratings, a financial health ratings firm. “It’s no wonder why Amazon had such a great quarter.”

[Read: The Valuable World of Value Investing.]

Amazon shares were up more than 11 percent for 2016 going into Thursday’s report. In 2015, AMZN was the second-best performer in the entire Standard & Poor’s 500 index, soaring 122 percent. While the stock didn’t do much immediately after the big beat, shares were up 2.2 percent on Thursday before the release, so some of the gains may have already been factored in by the market.

The muted response is still unusual though, especially since Amazon’s guidance also cruised past analysts’ expectations. The company projected revenue between $31 billion and $33.5 billion in the third quarter, implying a midpoint at $32.25 billion that was meaningfully higher than the $31.63 billion consensus estimates.

The company’s cloud computing arm, Amazon Web Services, is largely responsible for Amazon’s pivot to profitability in recent years. AWS revenue soared 58 percent in the second quarter to $2.9 billion.

High margins, consistently high growth, and the ability to quickly leverage and scale make AWS the perfect cash cow that can fund Amazon’s more ambitious, loss-producing exploits.

While the $99 annual fee it charges its Amazon Prime subscribers helps finance aggressive and expensive customer-centric services and perks like same-day delivery, the costs associated with those initiatives are growing rapidly. Fulfillment expenses rose by nearly 35 percent to $3.9 billion last quarter.

“Over half of American households are now Amazon Prime members,” says Tien Tzuo, CEO of Zuora, a subscription billing, commerce, and finance solutions company. “Over 3 million Echos have been sold. Jeff Bezos has created a massive subscriber-based loyalty program that is doing to retail what Netflix (NFLX) and Spotify did to content. It’s a pretty remarkable achievement.”

[See: The 10 Best Ways to Buy Tech Stocks.]

That’s where the high margins of AWS come in handy. Despite accounting for just 9.5 percent of overall sales last quarter, the cloud leader generated $718 million in operating income — nearly 56 percent of the entire company’s operating income. To say the cloud is fueling the company’s profitability is an understatement.

Driven by the larger role of AWS, operating margins rose again, more than doubling from 2 percent a year ago to 4.2 percent in the most recent quarter.

While AWS is the clear leader in the enterprise cloud computing arena, Microsoft Corp.’s (MSFT) Azure is widely considered the No. 2 player. Azure revenue rose 102 percent last quarter, although Microsoft doesn’t break out exactly how much it made.

Sales growth, devices. North America revenues rose 28.1 percent to $17.7 billion, while international revenues rose 30.1 percent to $9.8 billion.

The Amazon Echo, a voice-controlled wireless speaker and virtual assistant, has continued to fly off the shelves. At $179.99, Amazon says that it couldn’t keep it in stock in the first quarter, and during Amazon Prime Day — which falls into the third quarter — it sold out before the day was over.

Other Amazon devices like the Fire TV Stick and its Kindle Fire tablets, have also been huge successes.

Amazon products may be cheap, but its stock isn’t. The rapid rise of AMZN stock leading up to Thursday’s report doesn’t come without its risks. Going into the second-quarter announcement, Amazon shares were trading at 307 times earnings and 75 times forward earnings, both steep premiums to the S&P 500, which trades for less than 25 times earnings and 18.4 times forward earnings.

The general idea with Amazon is that it will keep expanding into new verticals and growing market share until eventually it begins to enjoy larger and more significant economies of scale. AWS appears to have been the first significant step in making that vision a reality.

There are few markets Amazon feels it can’t compete in, and this year it’s even been taking steps towards becoming a legitimate shipping company in its own right. In two separate deals, Amazon has agreed to lease 40 Boeing Co. (BA) aircraft for periods of five to seven years, giving the company more shipping capacity and signaling a willingness to ease its reliance on FedEx Corp. (FDX) and United Parcel Service (UPS).

[Read: Facebook: Earnings Catapult FB Stock to All-Time Highs.]

Despite Amazon’s endless ambition, the lofty valuation of AMZN stock is still difficult to justify longer-term, and Amazon will have to continue ramping up profitability rapidly for years to come in order to give shareholders bang for their buck. After what was by all major metrics a blowout second quarter, the sedated response from Wall Street shows just how high the bar is set.

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AMZN Earnings Confirm Amazon’s Dominance, Though Stock Wavers originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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