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Amazon Profits Slide As Expansion Costs Bite

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Sales at Amazon skyrocket, but its expansion into new sectors takes a serious toll on its profitability

Amazon is paying the price for its expansion into new markets and sectors, as its profitability in the second quarter fell a staggering 77 percent.

But this steep profit slide was tempered by the news that the e-commerce giant continues to reap the reward from online retail sales, as revenues rose an impressive 25 percent.

It comes as Amazon celebrated its 21 birthday this month, and CEO Jeff Bezos briefly overtook Bill Gates to be the world’s richest man, thanks to a sudden (but brief) spike in Amazon’s share price.

Amazon Web Services
Amazon boss Jeff Bezos

Profit Slide

Overall, it was mostly a positive quarter financially speaking for the firm.

For the quarter ending 30 June, Amazon posted a net profit of $197m (£151m), well down from the $857m (£655m) profit it made in a year earlier, as Amazon continues its habit of investing heavily in developing its own business.

Sales rose 25 percent to $37.9bn (£29bn), compared to $30.404bn (£23.2bn) in the same year-ago quarter.

“Our teams remain heads-down and focused on customers,” said Jeff Bezos. “In the last few months, we launched Echo Show (our newest Echo device with a video screen), introduced calling and messaging via Alexa on all Echo devices, debuted Inside Edge on Prime Video (the first of 18 Indian Original Series), introduced Amazon Channels in both the UK and Germany, launched four new Fire tablets, expanded Amazon Fresh to Germany, launched Prime Now in Singapore, launched our 25th airplane with Prime Air, hired more than 30,000 new employees, opened three new Amazon Books stores, launched more than 400 significant AWS features and services, migrated more than 7,000 databases using AWS Database Migration Service, and held our third annual Prime Day – signing up more Prime members than ever before.

“It’s energizing to invent on behalf of customers, and we continue to see many high-quality opportunities to invest.

 

AWS Performance

Amazon Web Services (AWS) also signed up a number of significant customers during the quarter, including Ancestry (family history service), Hightail (virtual workspace for collaboration and file sharing), and California Polytechnic State University.

Like other Amazon divisions, AWS is also investing heavily in expansion and will open a new infrastructure region in Hong Kong and a second GovCloud region in the United States in 2018.

At the moment AWS is available in 44 ‘availability zones’ spread across 16 infrastructure regions worldwide. It plans to add another 14 availability zones across five AWS Regions going forward.

Other development with AWS saw the general availability of AWS Greengrass, software that allows customers to run AWS compute, messaging, data caching, and sync capabilities on connected devices.

Another development was the general availability of Amazon DynamoDB Accelerator (DAX), a fully-managed, highly available, in-memory cache that can reduce Amazon DynamoDB response times from milliseconds to microseconds.

AWS also witnessed the availability of G3 instances, GPU-powered Amazon Elastic Compute Cloud (Amazon EC2) instances designed for graphics-intensive workloads like 3D rendering, 3D visualisation, video encoding, and virtual reality applications.

And finally, AWS now has more than 30,000 databases using the AWS Database Migration Service since it became generally available in 2016.

Last week Amazon revealed it would double the number of research and development (R&D) roles (from 450 to 900) in London to coincide with the opening of its new UK head office in Shoreditch.

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