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Amazon Posts Impressive Quarterly Results: Profit And Revenue Beat Expectations

29 July 2016, 6:17 am EDT By Horia Ungureanu Tech Times
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Amazon is changing Whole Foods
Amazon’s earnings report for Q2 gave shareholders of the company a surge of joy. The revenue and profits were outstanding, and there is still room for growth, thanks to improved cost management.  ( Andrew Benge | Getty Images )

Amazon recently announced its third record profit, with almost twice on its profit margins and five quarters in the black in a row.

The revenue of the company spiked 31 percent, with a beefy 58 percent coming from the Amazon Web Services sector. The e-vendor, which usually sported razor-thin profit margins, managed to almost double the number, prompting it to make optimistic predictions about the upcoming quarter.

After Amazon's earnings call, stock of the company appreciated by 2 percent.

"The accelerating revenue growth was a pleasant surprise," says Colin Sebastian, a Robert W. Baird & Co. analyst. He adds that this might create high expectations from stakeholders in the future.

The positive results of Amazon land after the company invested massively despite registering quarterly losses. The last time the venture registered five consecutive profitable quarters was in 2012. After that, Amazon redirected most of its revenue back into operations and product development. Opening new warehouses was a key element in assuring faster delivering times for customers.

Brian Olsavsky, CFO at Amazon, notes that the company remains faithful to its investment philosophy. He points out that 18 more warehouses are scheduled to be built in the current quarter, which is three times more than last year.

One of the most eyed metrics in the earnings call, the operating profit margin, rose to 4.2 percent. This is more than twice as much as the 2 percent from 2015, and a clear signal that Amazon is having a good grip on its costs.

Looking at the big numbers, we notice that during the second quarter, Amazon banked $857 million profit. One year earlier, the e-merchandizer and internet service provider scored only $92 million. Sales surged from $23.19 billion to $30.4 billion.

One reason for the huge boost was the company's Amazon Web Services cloud computing division, which provides customers with access to computing power over the internet.

While in 2015, AWS revenue read $1.82 billion, this year, the service managed to pull $2.89 billion. That arm of Amazon is essential to maintaining investors' faith in the company, as it crafted itself as the best provider of services for large corporations, government agencies and even startups.

Amazon polled serious resources to lure large financial institutions and technology firms into using AWS, as rivals from Microsoft and Alphabet are also ramping up their cloud computing business.

The e-vendor is preparing to enter harder on the retail market as well. The company scored a higher market value than Wal-Mart in 2015, and it started to deploy its own brick-and-mortar stores around the United States.

Amazon also saw the advantages of incentivizing its customers with the $99-per-year Prime unlimited shipping membership. The offer smoothened out the online sales by a long shot, and Amazon decided to upgrade the program. It did so by delivering exclusive video streaming content and music. Also, a select few goods in a number of cities benefit from a one-hour-delivery time frame.

The company touted that Prime will soon land in India, a market in which Amazon pledged to invest $5 billion two years ago. The company lets its clients subscribe in a month-by-month offering, which brings both the streaming video service and Prime. Insiders familiar with the matter hint that a music streaming service will be available from Amazon, with monthly based subscriptions.

One challenge for the company, if it wants to maintain the growth and profit rates, is managing shipping costs. These expenses surged by 42 percent during the first three months of the year. Previously, shipping costs jumped by 37 percent in the holiday quarter of 2015.

According to Amazon's estimation, it spent $3.36 billion in shipping expenses during Q2.

The company's attempt to better handle shipping costs means that it must handle the "last mile" of the transport on its own. To make this happen, it purchased 40 planes and branded truck trailers.

When looking at the number of new employees, Amazon increased its workforce to 268,900, which is a 9.6 percent jump when compared with Q1.

The company is confident that it will rise in both revenue and profits and estimates that Q3 will bring it sales ranging from $31 billion to $33.5 billion. Meanwhile, analysts are gauging the figure at $31.63 billion.

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