Amazon cloud services buck trend as company profits fall
Fri 28 Jul 2017
Amazon has released its second quarter earnings, with performance significantly down on expectations but massive growth in its cloud computing department.
The web giant brought in $38 billion (approx. £29 billion) in the most recent quarter, slightly more than predicted by Wall Street, and around $8 billion more than in the same period last year.
Despite this revenue growth of 25% across the company, of which a significant amount came from its services business, including Amazon Web Services (AWS), its overall performance has not met expectations due to high costs bringing profits way down.
Operating income decreased by 51% to $628 million, compared to $1.3 billion in last year’s second quarter. The costs that brought the bottom line down so drastically came from a number of sources. Marketing efforts cost the company $2.2 billion, a rise of 44%. A similar percentage rise in technology and content meant that Amazon spent $5.5 billion in those areas.
The company has also been investing in staff, infrastructure, and development of its Echo products. As well as this, the organisation also set aside $467 million for tax purposes, though the reason for this heavy tax burden is currently unclear.
Looking ahead to the third quarter, Amazon gives a gloomy outlook, predicting a range between a loss of $400 million and a profit of $300 million. It expects revenue to continue growing, demonstrating a continued high level of spending.
In its earnings release, a list of highlights for the company is listed, showing projects and products it has been working on. Of particular importance is the growth in its Prime Day sales, the success of Amazon original productions such as Transparent and The Man in the High Castle, and the development of AWS.
AWS seems to be the silver lining in Amazon’s cloud this quarter, with $4.1 billion in sales, converted into $916 million operating profit. These profits come alongside a high level of investment and development in the business.
When questioned by an analyst on a conference call, Amazon CFO Brian Olsavsky noted that margins often fluctuate quarterly, particularly based on investment in the data centre market. Amazon is planning to build five more data centres across the world this year.
The Q2 announcement comes a day after CEO Jeff Bezos was named the world’s richest man, though the fall in share price given the poor performance has pushed him back again to number two behind Bill Gates.