Amazon is on Cloud Nine

Last week Amazon (Nasdaq: AMZN) delivered a spectacular quarterly performance, proving to the world that their business model works. Their investments in the Cloud service have paid off and coupled with international expansion, there appears to be nothing that can stop them now.

Amazon’s Financials

Amazon’s third quarter revenues grew a stellar 23% over the year to $25.4 billion, shooting past the market’s expected revenues of $24.88 billion. EPS of $0.17 also shattered the Street’s forecast of a loss of $0.13 per share. Operating income was $406 million versus operating loss of $544 million in Q3 2014.

By segment, net product sales increased 15% to $18.46 billion and net services sales grew 51% to $6.9 billion. By region, revenues from the North American segment improved 28% over the year to $15 billion and international sales grew 7%.

For the current quarter, Amazon projected revenues of $33.5 billion-$36.75 billion. It expects operating income in a wide range from $80 million to $1.28 billion, compared to $591 million in the fourth quarter 2014. The Street was looking for revenues of $35.116 billion with an operating income of $23 million.

Amazon’s Cloud Services

Amazon’s success continues to be driven by their cloud computing division. During the recently ended quarter, Amazon earned $2.1 billion in revenues from the Cloud segment, up 78% over the year. They have reported revenues of over $7 billion from the segment in the trailing twelve months period. Amazon’s investments in the Cloud model are giving good returns as the segment earns significantly higher profits than its other businesses. During the third quarter, the cloud segment accounted for nearly half of the operating income but accounted for only 8% sales.

And, Amazon is not stopping here as they continued to add enhancements to the cloud services. Last quarter, they introduced Amazon QuickSight, a fast, cloud-powered business intelligence service that simplifies the process of building visual aids and ad-hoc analysis for organizations. They also launched several new capabilities to make data transfer on to the AWS cloud faster, simpler, and more cost efficient with the release of AWS Snowball, a petabyte-scale data transport appliance that can securely transfer 50 TB of data per appliance. Other enhancements include the launch of Amazon Kinesis Firehose, a fully-managed service that captures streaming data from different sources and loads it into Amazon S3 or Amazon Redshift for near real-time data analysis.

To help organizations with transferring databases to AWS, they also released AWS Database Migration Service that monitors the progress of database migrations and alerts customers in case of issues. They are seeing strong market response for this new service. In just four months since becoming generally available in July, Amazon Aurora has become the fastest-growing service in the history of AWS.

Organizations looking to build apps on the AWS cloud now have access to Amazon Inspector, a service that checks and reports on how well customers applications follow security best practices; AWS Config Rules, a set of cloud governance capabilities that allow IT Administrators to define and monitor access to AWS; and AWS WAF, a web application firewall to protect applications from common web exploits.

Earlier this year, Gartner published their magic quadrant for cloud computing study and found that Amazon was by far the undisputed leader in the market. Gartner believes that “AWS is a thought leader; it is extraordinarily innovative, exceptionally agile, and very responsive to the market.” That belief is translating to pure numbers as well. According to a Synergy research report, Amazon accounts for 29% of cloud computing market followed by Microsoft’s 12%, IBM’s 7% and Google’s 6%. Essentially, Microsoft, IBM and Google put together also don’t come close to Amazon’s market share of the cloud.

Amazon’s Non-Cloud Growth

Amazon also continued to deliver significant offerings across their non-cloud portfolio. They are pushing hard for Fire sales and last quarter started offering six Fire tablets for the price of five. They recently introduced three new Fire TV devices with features such as 4K Ultra HD, voice search, and a game controller.

They have also been focusing on international expansion. Last quarter, they launched Fire TV and Fire TV Stick for Japanese customers. In the UK, they launched Prime Music to provide British customers over one million songs and hundreds of playlists to stream and download for free. They launched Amazon Pantry in Japan and Germany to offer Prime members the ability to purchase daily essentials in everyday sizes and have those items delivered for a flat-rate fee per shipping box. The categories of products being offered to international customers is also on the rise with the release of Business, Industrial and Scientific Supplies and Grocery selections in several markets. Amazon is also investing in the emerging economies. Their Mexican portal now has over 32 million items and expanded delivery on weekends and holidays to more than 70% of zip codes in Mexico City. In India, they are the largest store with more than 30 million products.

The market is impressed with their performance. Their stock is trading at $599.03 with a market capitalization of $280.8 billion. In the after hours post the announcement of the results, the stock touched a record high of $618.70.