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Enhancement in Cloud Service Revenues Propel Amazon Profits to Crush Estimates


04/29/2016


Enhancement in Cloud Service Revenues Propel Amazon Profits to Crush Estimates
Sending its shares soaring in after-hours trading and demonstrating the growing market power of its core retail business and new cloud services division, Amazon.com Inc reported profit and revenue that blew past analysts' expectations.
 
The disappointing fourth quarter Amazon reported in January had renewed worries among some shareholders about the company's comparatively thin profit margins and the latest result was in sharp contrast to the fourth quarter results.
 
After Apple, Microsoft and Intel all reported disappointing earnings, Amazon's performance also assuaged concerns about a broader slowdown among tech and internet companies.
 
"It did restore my faith," said Dan Conde, an analyst at the Enterprise Strategy Group, who keeps a close eye on Amazon's cloud business.
 
Compared to the $28.33 billion analysts had expected, the company also offered a bright outlook, with revenue guidance for the current quarter of $28 billion to $30.5 billion.
 
The company’s Amazon Web Services (AWS) cloud computing division was the highlight as Amazon displayed impressive growth for a company its size - revenues last quarter rose 28.2 percent to $29.13 billion, the biggest revenue growth since 2012. While operating income more than tripled to $604 million, revenues at the division climbed 64 percent to $2.56 billion.
 
Operating margins remain a healthy 27.9 percent even though it fell at the unit compared to last quarter even as Amazon spends heavily to compete with rivals like Microsoft and Google. That compares to 28.5 percent last quarter, and 16.9 percent a year earlier.
 
more profit in the quarter than Amazon's retail business was delivered by AWS which was launched 10 years ago. Research firms say AWS remains far ahead of rivals including Microsoft and Google and has more than 30 percent of the fast-growing cloud-computing market.
 
Its Prime loyalty program, which offers one-hour delivery, original TV programming and access to its digital entertainment products such as Prime Music and Prime Video for an annual fee of $99 has seen strong growth in subscribers, Amazon said.
 
In order to entice Prime customers through video, particularly its "Prime Originals", the company would ramp up its spending and which would show that Amazon develops itself. The success of programs including "Mozart in the Jungle" and "Transparent," which each have won Golden Globe awards is the basis f the strategy.
 
"We feel that program is working. We're going to significantly increase our spend in that area," Chief Financial Officer Brian Olsavsky said in a conference call with analysts.
 
A monthly subscription to the program for $10.99 was recently launched by the company. Amazon has also said it plans to offer its video streaming service as a standalone service for a monthly fee of $8.99.
The Consumer Intelligence Research Partners says the program has 54 million U.S. members even though Amazon does not break out the numbers of Prime subscribers. The relationship model around Amazon Prime is working as is suggested by Amazon's growth on the revenue side, said Frank Gillett, a senior analyst at Forrester Research.
 
The logistics operations of Amazon where it has started using its own trucks and planes to supplement carriers such as UPS and Fedex and offer-same day service would be continued to be built up by Amazon, said he  company.
 
"They're still great partners, have been, and will continue to be for the future. But we see opportunities where we need to add additional capacity and we're filling those voids," Olsavsky said in response to an analyst who asked if Amazon would ever entertain delivering items for those companies.
 
The success of new hardware products was also touted by Amazon founder Jeff Bezos.
 
"Amazon devices are the top selling products on Amazon," he said in a press release, citing the Echo voice-response system and the Fire TV Stick.
 
(Source:www.reuters.com) 


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