Amazon Profits Pass $850 Million In Q2 As Cloud Service Sales Climb 58%Featured
- Written by Glenn Taylor
Amazon had yet another profitable quarter — its fifth straight — with net revenues increasing 31% to $30.4 billion. Net income for the e-Commerce giant skyrocketed to $857 million in Q2, a significant leap from $92 million in the same period last year, as diluted earnings per share ($1.78) crushed Thomson Reuters estimates of $1.11.
Amazon Web Services (AWS) once again was shown to be a huge factor in the company’s ability to turn a profit, with net sales from the cloud service climbing 58% from last year’s totals to $2.89 billion.
Over the last 12 months, Amazon’s growth has clearly dominated industry e-Commerce sales to the tune of $82.8 billion, a 15.8% growth rate from the previous year, according to eMarketer. Walmart is the next-closest retailer, taking in $13.6 billion in the last 12 months. But Amazon’s move beyond retail into AWS, mobile technology and streaming content has helped supplement the retailer’s ability to thrive as a seller.
“Amazon isn’t a retailer that grows for the sake of growth, and it isn’t tied to anything that doesn’t work,” said Natalie Kotlyar, a Partner in BDO USA's Consumer Business practice. “If something doesn’t work, they will change it and close it down. They are quick to respond even when something doesn’t go right, and a perfect example of that would be their flash sale site MyHabit. It didn’t go the way they expected, and they closed it down. One of the biggest mistakes some retailers make is growing for the sake of growth. They grow to have more stores, and sometimes they lose sight of the fact it’s not always a good thing. If they have too many stores open, some may be underperforming, then it takes time to analyze and shut down the proper locations.”
Amazon’s profits may be even more impressive given that its quarterly results ended June 30, less than two weeks before its Prime Day sales event held on July 12. Although Amazon is often mum about its Prime membership or the success of Prime Day, the retailer indicated that the event was its biggest sales day ever, with worldwide orders growing by more than 60%. Orders from third-party sellers with Prime Day deals nearly tripled, showing that Amazon’s success is in fact beneficial to small businesses willing to hop aboard the e-Commerce train rather than fighting a losing battle.
To India And Beyond
Amazon’s CEO Jeff Bezos made it a point to highlight the company’s growth in India as a major driver of its international strategies going ahead. Since 2014, the retailer has pledged to invest a total of $5 billion in its Indian operations.
“It’s been a busy few months for Amazon around the world, and particularly in India — where we launched a new AWS Region, introduced Prime with unlimited free shipping, and announced that Prime Video is coming soon, offering Prime members in India exclusive access to Amazon Original Series and Movies — including original content featuring top Indian creators and talent,” Bezos said in a statement. “The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response.”
The retailer’s Asian growth doesn’t stop in India, however. China has been a massive target for Amazon when it comes to logistics expansion, as the company will export goods from Chinese suppliers to ports in Japan, Europe and the U.S.
Early in 2016, Amazon China registered for and received a U.S. maritime freight forwarding license, enabling the subsidiary to organize ocean shipping out of the country without having to operate its own ships.
Amazon’s consistent profits make a case that the retailer won’t be slowing down any time soon when it comes to outrageous fulfillment investments, such as when it leased 20 Boeing 767 aircrafts to further establish its own merchandise shipping network. For the quarter, Amazon reported a 44% rise in shipping expenses, reaching $3.36 billion, illustrating that the retailer has a luxury all other e-Commerce retailers simply can’t afford.
The projected variance in operating profit for Q3, expected to be between $50 million and $650 million, demonstrates exactly the kind of spending power Amazon wields, especially as it gears up for the holiday season. In anticipation of Q4, Amazon is opening 18 fulfillment centers in Q3, three times as many as the six it launched in the same period last year.
“The bottom line is that there's a large step up in the amount of fulfillment capacity in Q3,” said Brian Olsavsky, SVP and CFO at Amazon in an earnings call. “We are also nearly doubling our content spend in the second half of this year versus the second half of 2015. And we're nearly tripling our number of new Amazon Original TV shows and movies compared with the second half of last year.”
The Experience Still Gives Retailers A Fighting Chance
With an astounding profit margin that cannot be replicated, Amazon has effectively distanced itself from any other e-Commerce retailer, making it all the more urgent for merchants to focus on what they can do best for their own brand experience. Although Amazon continues to dominate the fulfillment game now, other retailers can still build out their own experience — whether in the store or online — that is designed to stand out from other industry players.
“Amazon is so unique because they have a broad spectrum of offerings to their clients that they’re able to reach various geographies, demographics and age groups,” Kotlyar stated in an interview with Retail TouchPoints. “A retailer that is more focused on a specific demographic, such as Millennials, has to focus more on their own type of customer. Amazon offers numerous types of products, however, they don’t have that personal experience because they don’t particularly focus on brick-and-mortar. Whereas if you go into a physical store, they will provide you with a live experience and perhaps a more personal customer service that Amazon can’t provide.”
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