Amazon just impressed investors with its first quarter earnings but indications that the retail giant could be purchasing Fox’s Regional Sports Networks could be the bigger story, according to Piper Jaffray research analyst Michael Olson, who sees the move as another way for Amazon to stay ahead of the competition.
Last week, Amazon’s share price popped as investors reacted to the company’s Q1, which surpassed expectations on profit, coming in with EPS of $7.09 per share versus the consensus estimate of $4.72 per share. At the same time, the company’s revenue grew at a 16.9-per-cent clip, which equaled the consensus estimate at $59.7 billion. (All figures in US dollars.) Amazon’s advertising business saw slower growth, increasing by 34 per cent to $2.7 billion, which its AWS cloud service kept its torrid pace by growing 41-per-cent year-over-year.
“It was a good quarter. They had a solid top line, the operating income beats significantly. Really, the only knock on the quarter was next quarter, looking at the guidance for operating income where they guided below consensus,” says Olson, to CNBC on Friday.
“But if you look at the last four quarters, they’ve beaten their guidance by an average of 71 per cent, so it’s probably the case that that operating income guidance is still conservative. There is the expense of adding $800 million of fulfillment costs for one-day shipping, but we think that’s money well spent,” he says.
Also announced last week, Amazon is reportedly in discussions with Sinclair Broadcast Group to boost their intended purchase of Fox’s string of 21 regional sports networks, which are being sold off by Disney as per regulatory requirements associated with its $72-billion purchase of Fox’s entertainment assets.
Up until now, sports has been the last holdout in the bid by streaming services to lay waste to both cable TV and cinema chains. And while there are a number of ways that viewers can effectively perform an end run around their cable providers and stream live sports —leagues such as the NBA and Major League Baseball have their own subscription-based services, for example— the prospect of an all-in one option would be a game-changer for Amazon, says Olson.
“If you look at these streaming services, one of the things they’ve missed so far is having sports content,” Olson says. “There are a lot of dollars that are switching over from traditional TV content over to streaming services, and sports has been the missing link. We haven’t seen Netflix have it, Hulu, Apple, any of the other services, so to the extent that Amazon can add it in, it’ll give them a differentiator for Prime Video.”
Amazon’s earnings call also featured the understated announcement that the company is planning on going from current two-day free shipping for Prime members to free one-day shipping, a move which would be crushing to some of its smaller retail competitors, says Olson.
“It’s just viewed as another way that they can continue to increase their escape velocity versus their competitors,” he says. “I can’t imagine how frustrating it would be to be one of their competitors who’s been just sprinting to catch up with free two-day shipping and now they get this bomb dropped on them that Amazon is going to one-day.”