Get Used to Amazon Being a Profitable Company
You may need to change the way you think about Amazon. It’s no longer just an e-commerce giant. It’s the world’s largest retailer. Period. And at the same time, it runs the world’s most successful cloud computing business.
On Thursday, Amazon posted its third quarter earnings report, and for the second quarter in a row, the Seattle company—know for shunning profits in favor of growth—is profitable. Both its Amazon Web Services cloud business and its North American retail sales were strong performers for the company.
But AWS was the real winner. The cloud business’s operating income in the third quarter ($521 million), was almost as much as Amazon’s whole North America e-commerce business ($528 million). Amazon says its operating margins were 3 percent and 25 percent for its North America e-commerce business and AWS, respectively. All of which just means: Its cloud business is still killing it. And it adds, in a big way, to Amazon’s new profitability.
The growth numbers are also impressive, to be sure: AWS third quarter revenue grew 78 percent year over year—specifically, generating $2.1 billion in revenue versus $1.17 billion in Q3 2014—which is only slightly slower than the 82 percent growth that Amazon saw in the second quarter.
Even with all that success, Amazon CFO Brian Olsavsky took a more conservative tack on an earnings call with analysts this afternoon. “The [cloud business] model remains early days,” Olsavsky said. “Growth rates and margins will remain lumpy and bumpy, but we’re very encouraged.” However, he did acknowledge that customers were really responding to the product, adding that AWS had added 530 new features in 2015—already more than last year.
It’s almost painfully obvious at this point, but Amazon beat analyst expectations. Analysts canvassed by Thomson Reuters estimated that Amazon would lose 13 cents per share on revenue of $24.9 billion. But the tech giant handily surpassed that, reaching a profit of 17 cents per share on revenue of $25.4 billion in the third quarter.
All in all, the company’s path forward looks pretty rosy. Amazon says it expects to have a “record holiday season” coming up, and when executives were asked, during the investor call, whether the company still sees itself as a heavy investor in some of its smaller businesses, Olsafsky responded that it was focused in particular on pouring its resources into its Prime membership platform globally. According to industry research firm eMarketer, the global e-commerce market amounted to $1.32 trillion in 2014, and is expected to grow 20.9 percent more this year. With Amazon’s share of the global e-commerce market at only a fraction of that—still less than 10 percent—it could see yet more success in this area.
Needless to say, investors are loving the results. Shares rose as much as 11 percent in after-hours trading. As of this writing, shares are up to $625. That’s already higher than the previous stock high, back in July, of $580.57.
Finally, off of the news of Amazon’s better-than-expected quarter, Jeff Bezos just leapt to third-richest person in the US, according to Bloomberg.
Basically, it’s starting to look like we have to get used to a new and (gasp) profitable Amazon.