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Way to Go, Amazon

Posted on Monday, Jul 27th 2015

This quarter appears to be a record quarter for many. Google saw its stock soar to a record high driven by their impressive results and YouTube’s performance. Microsoft reported a record loss despite a booming cloud business. Even Apple delivered record performance on iPhone sales, but failed to deliver on financial metrics that has sent their stock tumbling. Etailer Amazon (Nasdaq: AMZN) broke several records. Surprisingly, the company announced a profitable quarter, sending the stock soaring high – so much that Amazon is now bigger than Walmart.

Amazon’s Financials

Amazon’s second quarter revenues grew 20% over the year to $23.18 billion, ahead of the market’s expected revenues of $22.4 billion. EPS of $0.19 per share was significantly ahead of the Street’s forecast of a loss of $0.15 per share.

By segment, net product sales increased 12% to $17.10 billion and net services sales grew 49% to $6.08 billion.

For the current quarter, Amazon projected revenues of $23.3 billion-$25.5 billion. Operating income is expected to range from a loss of $480 million to a profit of $70 million. The Street had forecast revenues of $23.89 billion for the quarter.

Amazon’s Cloud Growth

Amazon’s success in the recent quarter is being attributed to their cloud business. Revenues for the cloud grew 81% over the year to $1.824 billion while profits grew five times to $391 million.

They continued to improve their cloud offering. Amazon Web Service (AWS) has launched over 350 significant features and services so far this year. Some of these include the recent release of AWS Educate, a program that will help educators and students use real-world cloud technology in the classroom to prepare them as future users of this technology in their workplace. They announced Amazon API Gateway, a new service that will simplify the process of creating, publishing, maintaining, monitoring, and securing APIs at any scale. Other new services include an AWS Device Farm which will help mobile app developers test their apps on smartphones, tablets, and other devices to improve the quality of the Android and Fire OS apps. They are also looking at expanding their services internationally and will be opening to the Indian market next year to serve the customers in the region.

Cloud is a much more profitable business than retail, so we can expect to see more profits from Amazon as this portion of their business grows further.

Amazon’s Prime Growth

Amazon has seen strong success with Prime in the recent quarter. While the company did not divulge details, they did mention that there are more people converting to a Prime membership than ever before. Analysts estimate that Amazon has nearly 40 million Prime members.

Earlier this month, Amazon celebrated the Black Friday equivalent of deals in the summer through an event called Prime Day. Prime Day was a global shopping event that offered several deals to Prime members. Amazon claims that the event was a success as more new members tried Prime worldwide than any other day on Prime Day.

They also launched Prime free same-day delivery in 14 US metro areas and are now catering to more than 500 cities and towns as part of this enhanced service. Prime members can choose from a listing of more than one million items and receive their order on the same day if they place the order by noon. They expanded their one-hour delivery service Prime Now to three more cities, including London. Prime Now is now available in nine cities and offers Prime members access to one-hour delivery on thousands of daily essentials.

Amazon will need to continue to invest in their e-tail division considering the rising competition. Earlier this year, a new competitor entered the market. Jet offers Prime like benefits to their members at half the price of a Prime membership. Jet’s members can access an inventory of over 10 million products that are sold at a discounted price.

Their stock is trading at $529.42 with a market capitalization of $247.62 billion. It touched a record high of $567.72 in aftermarket trading after the results were announced, and their market capitalization had peaked to over $262 billion compared with Walmart’s market capitalization of $233.5 billion.

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