Amazon’s Birthday Present: Surprise 2Q Profit

24 Jul 2015 | Author: | No comments yet »

Amazon Surpasses Wal-Mart as Biggest Retailer by Market Value.

NEW YORK (AP) — Investors helped Amazon celebrate its 20th birthday, pushing the online retailer’s stock up 17 percent in aftermarket trading Thursday after it reported a surprise second-quarter profit.

If the jump holds in Friday trading, Amazon’s stock-market value could surpass that of its longtime retail rival Wal-Mart Stores Inc., signaling a sea change in the U.S. retail landscape. Amazon shares rose as much as 19 percent to $573.45 in after-market trading on Thursday, giving the Seattle-based company a value of about $267 billion. Amazon, which turned 20 on July 16, credited the profit to continued strength of its cloud-computing business and strong revenue growth both domestically and abroad.

Think of AWS as a turbocharger for Amazon.com to use against e-commerce competitors, including, but not limited to, Walmart, Flipkart, eBay, and even newcomers like Jet.com. The lack of transparency prompted years of speculation about how much money Amazon was making from the service and whether it was operating with the the same razor thin margins as its retail business.

Seattle-based Amazon has held a long-time strategy of investing the money it earns back into the company, resulting in quarterly losses or thin profits. In hindsight, Amazon’s introduction of AWS — starting with the Elastic Compute Cloud (EC2) beta on August 24, 2006 — looks like a stroke of genius. “It … lets you run on Amazon’s proven computing environment,” Amazon said at the time. Microsoft expects to make $8 million this year off its cloud division, but that estimate includes cloud business offerings like Office 365 and Dynamics in addition to its Azure service, which competes more directly with AWS. In a call with analysts, new Amazon CFO Brian Olsavsky said the company would continue to look for ways to keep costs in check while at the same time investing in “things that we think are big and important.” Amazon got a boost in revenue from Amazon Web Services, a suite of products and services offered to businesses by way of the “cloud,” or remote servers that enable users to access applications on any machine with an Internet connection.

The company won’t say how many Prime members it has, but it’s estimated to be as many as 40 million, and Prime members typically spend more than other shoppers. In the three months ending June 30, Amazon’s net income was $92 million, or 19 cents per share, compared with a loss of $126 million, or 27 cents per share, a year earlier. Last month Facebook became more highly valued than the world’s largest retailer, knocking it out of the top 10 list of the highest-valued companies in the Standard & Poor’s 500 index.

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