Amazon Profits From Cloud, Advertising Growth

Amazon has smashed Wall Street expectations after it reported a strong profit and pleasing revenue growth, thanks in part to the performance of AWS cloud unit and advertising.

Shares rose more than 3 percent in after-hours trade, continuing the upward trend for its share price that has helped CEO and founder Jeff Bezos become the world’s richest man.

And Amazon also pleased investors with a positive outlook going forward. This was in stark contrast to Facebook, which earlier this week warned of a squeeze of profit margins in the years ahead due to costs of improving privacy safeguards and a slowdown in advertising markets.

Amazon and Blue Origin founder Jeff Bezos

Strong profits

Like Facebook, Amazon results show a healthy business at the moment with a strong improvement in both profits and sales.

For the second quarter ending 30 June, Amazon posted a net profit of $2.5bn (£1.9bn), up dramatically from a profit of just $197m (£150m) a year earlier. This was double what investors had been expecting, and it should be remembered that Amazon is a company that famously never made a profit until 2001, despite it being founded back in 1994.

Sales in the most recent quarter meanwhile rose to $52.9bn (£40.4bn) from $37.9bn (£29bn) a year earlier, just missing the average analyst estimate of $53.4bn (£40.8bn).

“We want customers to be able to use Alexa wherever they are,” said Jeff Bezos. “There are now tens of thousands of developers across more than 150 countries building new devices using the Alexa Voice Service, and the number of Alexa-enabled devices has more than tripled in the past year.

“Our partners are creating a wide variety of new Alexa-enabled devices and experiences, including soundbars from Polk and Sonos; headphones from Jabra; smart home devices from ecobee and First Alert; Windows 10 PCs from Acer, HP, and Lenovo; and cars from automakers including BMW, Ford, and Toyota,” he added.

Seattle-based Amazon has benefited from the fact that it has controlled its expenses as it seeks to create highly profitable units, such as its cloud division (AWS) and data storage. Sales here rose 49 percent to $6.1bn (£4.6bn), beating the average estimate of $6bn (£4.5bn).

Advertising growth

“A big contributor to the quarter and the last few quarters obviously has been strong growth in our highest profitability businesses and also advertising,” Brian Olsavsky, Amazon’s chief financial officer, was quoted by Reuters as saying on a call with media. “We’ve seen a greater-than-expected efficiency in a lot of our spend in things like warehouses, data centres, marketing.”

Another very profitable area for Amazon was its ad sales. The company said revenue from the category and some other items grew 132 percent to $2.2bn (£1.7bn).

Analysts were expecting $2.1bn (£1.6bn), according to Thomson Reuters.

It should be noted that Amazon has a bit of advantage in the advertising space, as adverts reportedly tend to result directly in sales, as they target customers on Amazon who are already intending to shop, unlike adverts on say Facebook and Google.

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Tom Jowitt

Tom Jowitt is a leading British tech freelancer and long standing contributor to Silicon UK. He is also a bit of a Lord of the Rings nut...

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