Inc.’s 3Q & 9M FY2022 Results Review Inc.’s 3Q & 9M FY2022 Results Review

Amazon (NASDAQ:AMZN), known for its namesake online shopping website, Kindle reading device and online cloud (in Amazon Web Service), is one of the US companies in my long-term investment portfolio (with my price averaged at US$120.00.)

This post was originally posted here. The writer, Jun Yuan Lim is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2100 followers.

The company’s reporting business segments are as follows:

i. Online Stores: Where they offer a wide selection of consumable and durable goods that includes media products available in physical and digital formats (such as books, videos, games, music, and software);

ii. Physical Stores: Where customers physical select items in a store operated by the company (such as Amazon Go, Amazon Fresh, and Amazon Style);

iii. Third-Party Seller Services: Where income comes from commissions and any related fulfilment and shipping fees, along with other third-party seller services;

iv. Subscription Services: This includes annual & monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS (Amazon Web Services) subscription services;

v. Advertising Services: Where the company sells advertising services to sellers, vendors, publishers, vendors, authors, and others, through sponsored ads, as well as display and video ads;

vi. AWS: Where they provide on-demand cloud computing platforms to individuals, companies, and governments on a “pay as you use” basis;

vii. Others: Includes sales related to other offerings, such as certain licensing and distribution of video content and shipping services, and its co-branded credit card agreements 

The tech company have made available its results for 3Q FY2022 on 26 Oct, and in this post, you’ll find snippets of its financial results (on a q-o-q and y-o-y basis), debt profile, CEO Andy Jassy’s comments, guidance for the 4th quarter ahead, and also whether or not at its current traded price, it is considered to be ‘cheap’/‘expensive’:

Financial Performance (3Q FY2021 vs. 3Q FY2022)

My Observations:

  • Apart from its net profit margin falling by 9% (due to a huge rise in provision for income tax – from $69m in 3Q FY2021 to $1,155m in 3Q FY2022), and hence its net profit margin edging down by 0.5pp, its q-o-q results is in my opinion a stable one.
  • The 14.7% increase in total revenue can be attributed to an increase in sales from all of its business segments – online stores, physical stores, third-party seller services, subscription services, advertising services, AWS, as well as others.
  • Along with its cost of sales increasing by a smaller percentage (at 11.7%, due to increased product and shipping costs from increased sales, increased investments in its fulfilment network, increased transportation cost, and increased wages rates), its gross profit margin improved by 1.5pp to 44.7%. 

Financial Performance (9M FY2021 vs. 9M FY2022)

My Observations:

  • Other than the company still remaining in a net loss position for 9M FY2022 (due to a pre-tax valuation loss including in non-operating expense for the company’s common stock investment in Rivian Automotive Inc, offset by a benefit of $1,990m for income taxes), I consider Inc’s latest y-o-y results as stable.
  • The 9.7% climb in total revenue can be attributed to improvements recorded in all of its business divisions (online stores, physical stores, third-party seller services, subscription services, advertising services, AWS, as well as others.)
  • As the cost of sales went up by a lower percentage compared to its total revenue, its gross margin saw a 1.3pp improvement to 44.3% for 9M FY2022. 

Cash Flow Statement (9M FY2021 vs. 9M FY2022)

My Observations:

  • The 27.5% drop in net cash flow in operating activities was due to changes in working capital, along with changes in net profit (where it fell into a -$3,000m loss), excluding non-cash expenses.
  • As total borrowings increased at a higher percentage, and also at a bigger amount compared to its cash and cash equivalents, Inc. fell deeper into a net debt position for 9M FY2022.

Comments by CEO Andy Jassy, and Guidance for 4Q FY2022:

Comments by CEO Andy Jassy:

“In the past four months, employees across our consumer businesses have worked relentlessly to put together compelling Prime Member Deal Events with our eighth annual Prime Day and the brand new Prime Early Access Sale in early October. The customer response to both events was quite positive, and it’s clear that particularly during these uncertain economic times, customers appreciate Amazon’s continued focus on value and convenience.

We’re also encouraged by the steady progress we’re making on lowering costs in our stores fulfillment network, and have a set of initiatives that we’re methodically working through that we believe will yield a stronger cost structure for the business moving forward. There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets. What won’t change is our maniacal focus on the customer experience, and we feel confident that we’re ready to deliver a great experience for customers this holiday shopping season.”

Guidance for 4Q FY2022:

  • Net sales are expected to be between $140.0 billion and $148.0 billion, or to grow between 2% and 8% compared with fourth quarter 2021. This guidance anticipates an unfavorable impact of approximately 460 basis points from foreign exchange rates.
  • Operating income is expected to be between $0 and $4.0 billion, compared with $3.5 billion in fourth quarter 2021.

Is the Current Traded Price of Inc. Considered ‘Cheap’/’Expensive’? 

Closing Thoughts

I felt Inc.’s latest set of financial results (both on a q-o-q and y-o-y basis) is a stable one (in fact, its revenue growth on a q-o-q basis was pretty much in-line with its forecast – which was between 13% and 17%) – the only negative was the company continuing to remain in a net loss position for the first 9 months of the year due to a pre-tax valuation loss for its investment in Rivian Automotive Inc.

Another negative in the company’s latest quarterly results was in its cash flow position – where it fell deeper into a net debt position for the first 9 months of the year. 

Finally, for the guidance for the fourth quarter, in my personal opinion, it was pretty much within my expectations considering the economic headwinds, and with that, consumers becoming more conservative in their spending patterns. 

With that, I have come to the end of my analysis of Inc.’s latest 3Q and 9M FY2022 financial results. Hope you’ve found the contents presented in this post useful, and as always, do take note that all the opinions you’ve just read above are purely mine, and they do not represent any buy or sell calls for the company’s shares. You should always do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am invested in Inc. 

Once again, this article is a guest post and was originally posted on ljunyuan‘s profile on InvestingNote. 

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