Why Amazon Is Still Planning for Massive Growth

There was a lot to like in Amazon’s first-quarter earnings report, released Thursday afternoon.

Revenue for the quarter soared by 44% to $108.5 billion, its fastest growth in nearly a decade, driven by a strong performance in international markets as many parts of Europe were back under lockdowns during the period.

Profits continued to head upward thanks to growth in high-margin businesses like Amazon Web Services, third-party seller services, and advertising. E-commerce is emerging as a substantial profit generator, contributing $4.7 billion in operating profits, including $1.3 billion from international markets, where it has historically operated at a loss. The company finished with earnings per share of $15.79, more than tripling the number from a year ago, and well ahead of estimates for $9.54.

However, one number more than any other in the report shows why Amazon still has big things in store.

“Always Day One”

Over the last four quarters, Amazon has spent a whopping $45.4 billion on capital expenditures, more than twice what it spent in the 12 months prior. The company is investing aggressively in a wide array of businesses including new Amazon Fresh supermarkets, cloud infrastructure, and voice-activated technology. But the biggest driver of that capex growth has been logistics.

On the earnings call, Chief Financial Officer Brian Olsavsky said that the company had expanded its fulfillment capacity by 50%, and noted the opening of new fulfillment centers, “middle mile” infrastructure such as sortation centers, trailers, and airplanes, as well as last-mile delivery stations for its service partners.

The level of investment the company is making shows that even though it’s the second-biggest company in the country by revenue, Amazon still has big growth plans ahead, especially as it experiments in new areas like healthcare and its automated checkout technology, Just Walk Out. As CEO Jeff Bezos likes to say, it’s always Day One at Amazon, meaning the company aims to keep acting like a start-up despite being one of the biggest companies in the world.

The chart below shows that Amazon’s capital expenditures, a proxy for investments in a business’s growth, are now well ahead of those of its big-tech peers.

AMZN Capital Expenditures (TTM) data by YCharts

What’s notable is that its peers’ capital investments have mostly plateaued, while at Amazon, those outlays are surging as it moves to penetrate new industries and capitalize on opportunities that have opened up during the pandemic. Amazon is not resting on its laurels.

What this means for investors

It’s hard to understate how substantial the past year’s $45.4 billion in capex investment was. That’s more than all but roughly 70 U.S. companies generated in revenue last year. Most businesses could never come close to this pace of infrastructure spending even if they wanted to.

It’s also important to note that investors trust Amazon to spend like this. Walmart‘s stock price fell in February after it said its capex would increase to $14 billion, while investors bid Target shares downward after the retailer forecast its annual capital expenditures would rise to $4 billion.

Another thing that separates Amazon from the pack is that no one ever asks if it has plans to buy back shares or return capital to shareholders in other ways. It’s clear that it’s squarely focused on growth. The company has myriad ways to reinvest in its business including expanding fulfillment capacity, speeding up delivery, adding new content to Prime Video, building new data centers for AWS, experimenting with new technologies, or pioneering innovations in areas like healthcare or brick-and-mortar retail. Another sign that the company is still anticipating rapid growth is that its employee count is up 51% over the last year to 1.27 million.

While Amazon’s torrid revenue growth should ease up as the tailwinds of the pandemic fade, the company has no intention of moderating its investments. Expect it to keep ramping up its capital expenditures, and expect those outlays to drive its revenue even higher.