Armaghan Ahmed

Fall 2015 Homework #3 [WORTH 26 POINTS]

After completing this homework, you should have a much deeper understanding of the strategic and
operational issues facing AMAZON. You will also have had experience digesting its quarterly results
and listening to its earnings conference call. To learn about any public company, you would go through
this same process.
Do not wait until the last minute to do this homework. It requires you to carefully read a press release
announcing AMAZONs 2015 SECOND QUARTER (2015Q2) results and listen to a conference call
via an archived webcast, which lasts 45 minutes. I will not accept technical difficulties as an excuse
for not being able to listen to the webcast. You may listen to the conference call with classmates.
Retrieve the PDF of the press release (not the 10-Q). The PDF can be found by: 1) going to
amazon.com, 2) clicking on Investor Relations near the bottom, 3) clicking on Quarterly Results on the
left, 4) clicking on Q2 2015 Financial Results dated 7/23/15. The PDF is 13 pages. Again, do not use
the 10-Q, which is 51 pages.
The following questions can be answered from a careful reading of the press release. There will be some
new terminology that we have not covered yet, like free cash flow, so ignore those items for now. All
dollar amounts should be expressed in millions (same format as in Amazons tables).
[1 POINT FOR EACH QUESTION; 23 POINTS TOTAL]
Read and interpret the voluntary disclosures:
1. The company reported results for the second quarter of 2015. From what exact date to
what exact date is the companys second quarter?
April 1st, 2015 to June 30th, 2015.
2. What are the first two financial measures that Amazon chooses to disclose in its press
release?
Operating cash flow and free cash flow.
3. What is the last financial measure that Amazon chooses to disclose in its press release?
Net income
4. To emphasis its global domination, the company voluntarily mentions many foreign
countries and cities in the bulleted highlights. List them all.
London, U.K., Germany, Mexico, India, China, EU, Frankfurt, United States,
5. In the highlights, the last six bullets pertain to Amazon Web Services (AWS). In only one or
two sentences, explain what AWS is in layman terms. (You may need to do some
background research on your own).
AWS is a virtual server where Amazon allows small companies and businesses the ability to buy
up IT resources and services such as server space, storage and databases
Check the income statement:
6. What percentage of 2015Q2 sales is from products vs. services?
Products 73.8 %; Services 26.2%
7. Compute Gross Profit (using total net sales and cost of sales) for 2015Q2 and 2014Q2.
Gross Profit 2015Q2 $8.025 billion , 2014Q2 $5.941 billion
Page 1

Armaghan Ahmed
8. Compute Gross Margin, which is Gross Profit divided by total net sales, for each quarter.
Gross Margin 2015Q2 34.6%, 2014Q2 30.7%
9. Was the company profitable during 2015Q2? If so, what was net income?
Yes, it was profitable. Net Income was $92 million.
Check the Balance Sheet:
10. How much is the sum of cash, cash equivalents, and marketable securities as of 6/30/15?
$14.001 billion
11. How much long-term debt does the company have as of 6/30/15?
$8.25 billion
12. Compute working capital as of 12/31/14 and 6/30/15. Use our in-class definition of
WC = Inventories + Accounts receivables Accounts payable.
$1 million
Check the Cash Flow Statement:
13. What is the companys capital expenditures for 2015Q2? A synonym for capital
expenditures is purchases of property and equipment.
$4.607 billion if only purchase of PP&E is considered. However, if we use a broader definition
and include PP&E acquired under capital lease agreements, this number is $9.31 billion.
Check Segment Information:
14. What percentage of (consolidated) 2015Q2 sales comes from North America vs.
International?
North America 59.5%; International 32.6%
15. What percentage of (consolidated) 2015Q2 sales comes from Media (including from North
America and International)?
20.3%
16. What percentage of (consolidated) 2014Q2 sales comes from Media (including from North
America and International)?
25.04%
Check the guidance:
17. What is the companys guidance for sales in 2015Q3?
Net sales are expected to be between $23.3 billion and $25.5 billion.
18. What is the companys guidance for operating income (or loss) in 2015Q3?
Operating income/loss is expected to be between -$480 million and $70 million.
Listen to the conference call (which took place 5:00pm EDT 7/23/2015):
In the IR Info box to the left, click on Webcast Archives, then click on Q2 2015 Amazon.com
Inc Earnings Conference Call. Enter your name and email. The conference call lasts 45 minutes,
with the first 10 minutes being prepared remarks (dont fall asleep) and the last 35 minutes being
Q&A with analysts. The prepared remarks are basically repeating whats in the press release,
Page 2

Armaghan Ahmed
while the Q&A portion is important to follow and understand. Listen for the tone of the questions
and whether management responds openly or not.
19. Name the company executive, and his title, who gave the prepared remarks and answered
the analysts questions.
Brian T. Olsavsky, Senior Vice President and Chief Financial Officer (CFO)
20. How many worldwide active customers does the company have? How about after excluding
customers who only had three orders or less in the prior twelve months?
285 million active customer accounts. Excluding customers who only had three orders or less in
the prior 12 months, this number stands at 237 million.
21. Within plus or minus one, how many analysts had the opportunity to ask a question?
19 analysts
22. Did the company answer all the analysts questions fully?
Generally speaking, the CFO was very cogent and open in his remarks, even though he didnt
answer all the questions fully. I think he was particularly hesitant to talk more about AWS and its
impact he certainly didnt provide the granular details on customer accounts or provide a clear
basis for how he expected to continue funding capital expenditures associated with AWS.
23. Who do you think asked the best question? In other words, name the brokerage house
for which you believe the analyst asked the best question, and briefly mention the gist of
the question. For example, I liked the analyst from _______ who asked about _______ the
video content business.
I liked the analyst from Needham & Company who asked about the potential benefits and
opportunities associated with partnering with the post office as well as asking the CFO on the
specifics of advertising revenue.
Check the stock price reaction before and after the news and conference call:
24. What was the closing price of AMZN stock on 7/23/15? You can use Yahoo Finance, Google
Finance, or any other data provider to look up a stocks historical prices.
$482.18
25. What was the closing price of AMZN stock on 7/24/15?
$529.42
26. How much did the stock price change in absolute dollars and percentage terms?
$47.24; 9.8% increase

Page 3