Amazon’s Shock Earnings Show That It’s Cashing In on Wall Street’s Goodwill

With Inc. (AMZN) flirting with a $500 billion valuation and shares of bricks-and-mortar rivals frequently tumbling on fears of what the company might do to them in the future, Jeff Bezos & Co. must be well-aware that Wall Street is providing them with more leeway than ever to sacrifice near-term profits to make big investments meant to drive long-term e-commerce and public cloud growth. Amazon’s Q2 results and Q3 guidance show that it’s making the most of this goodwill, even if doing so risks triggering a bit of selling from investors holding giant paper profits.

Amazon reported Q2 revenue of $37.96 billion (up 25% annually, better than Q1’s 23%) and GAAP EPS of $0.40 (down from $1.78 a year ago). Revenue beat a $37.2 billion analyst consensus, but EPS missed a $1.41 consensus.

Q3 guidance fits a similar pattern. Revenue guidance of $39.25 billion to $41.75 billion (20% to 28% growth) is favorable to a $40 billion consensus at a $40.5 billion midpoint. But Amazon is also forecasting operating income will fall to a range of negative $400 million to positive $300 million, from a level of $575 million a year ago.

Shares fell 3% in after-hours trading to $1,014.54. They’re still up 35% on the year, and 10% from where Amazon traded before posting a Q1 beat in late April. For now, Bill Gates has reclaimed the title of the world’s richest man from Bezos.

Amazon’s U.S. e-commerce operations remain a force of nature, rapidly taking share as Amazon’s third-party seller base keeps expanding, its fulfillment center expansion keeps cutting shipping times and (more importantly) more consumers get hooked on Prime.

North American segment revenue grew 27% annually to $22.4 billion, outpacing Q1’s 24% growth and Q4’s 22%. For comparison, comScore estimates the U.S. e-commerce market is growing 15% overall, and eBay Inc. (EBAY) , which Amazon has long been taking share from, reported its U.S. gross merchandise volume (GMV) grew just 3% in Q2 to $8.8 billion.

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