Amazon reported its earnings today, wherein a whiff in earnings sent the stock down around 3 percent and brought CEO Jeff Bezos back to reality as the, once again, second-richest human in the known solar system.
In all seriousness though, this is a big quarter for Amazon as it looks to close out its $13.7 billion bid for Whole Foods. The company appears to once again be squeezing out a very small profit on top of its mammoth retail operations, and that will only face more pressure as it looks to wrap up that deal and gain control of hundreds of retail outlets across the country.
The drag here is that Amazon is offering a big range in its income that goes into the red — projecting anywhere from a loss of $400 million to a profit of $300 million. The company has had a nice stretch of profitability even as it spends aggressively on growth, but it appears that might come to an end next quarter. It’s a signal that Amazon may be going back into burn mode as it starts to expand, especially with the acquisition of Whole Foods.
The company’s shares have seen a meteoric rise this year, as shares have risen almost 40 percent since the beginning of the year. That huge rise led to Bezos overtaking Bill Gates as the richest person in the world, a sort of iconic passing of the torch as Amazon has become the interface between online retail and operations and the physical world. Amazon has continued to bust into new areas like voice recognition with Alexa, video streaming with Twitch — and now physical retail operations with Whole Foods.
Once again, AWS is carrying the lion’s share of the load here as it posted an operating income of $916 million — up from $718 million in the second quarter a year ago. Amazon’s net income this quarter was $197 million, down from $857 million in the second quarter a year ago. The company’s server operations have Amazon’s operating margin and, if you look pretty closely at the amount of profit the company is able to spit out, it’s pretty close to AWS — which is now on track to be a business that generates more than $10 billion a year.
Amazon reported earnings of 40 cents per share on revenue of $38 billion. Analysts were expecting earnings of $1.42 per share on revenue of $37.18 billion. That revenue is still up 25 percent year-over-year compared to the second quarter in 2016.
All that being said, AWS is still growing at around the same rate as it was last year. The company said its AWS sales rose 42 percent in the second quarter year-over-year. That’s down from 58 percent comparing the second quarter between 2015 and 2016. Any growth here is, of course, good growth as AWS is a critical piece of infrastructure for many companies around the world — and it spits out a very healthy operating profit on a regular basis.
That part of the business is, of course, going to face increasing competition as Google looks to ramp up its cloud efforts. Microsoft is also an ever-present challenger here, and while AWS is largely synonymous with the rise of cloud computing, it’s a utility that still has to keep up with the demands of startups and companies around the world.