Cloud Business Lifts Amazon’s Profit to a Record

Description: Helped by its fast-growing Amazon Web Services business, the company jumped to the most profitable quarter in its nearly 22-year history.

Source: NYTIMES:COM

Date: April 28, 2016

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Amazon often flip-flops between showing profits and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company much wider leeway to do so than other technology companies of its size often receive, because of its history of delivering outsize growth.

For the first quarter, which ended March 31, Amazon reported net income of $513 million, or $1.07 a share, up from a loss of $57 million, or 12 cents a share, in the same period a year ago.

Revenue at the company rose to $29.13 billion from $22.72 billion a year ago.

Amazon’s share price jumped more than 12 percent in after-hours trading after the results were released. Investors were happy to see the company show profits after the disappointing run of reports from Apple, Google, Microsoft and Intel.

“The fact that they’re profitable is a big deal,” said Christian Magoon, chief executive of Amplify Investments, a fund manager that counts Amazon as a top holding. “It’s more of a big deal after some of the disappointing numbers from Apple and others.”  Read Rest of Story

Questions:
1.  What is making Amazon more profitable now?

2. ” Amazon is the rare technology company of its size to still deliver double-digit revenue growth.”  Do you feel that AWS can keep them profitable going into the future  Why or Why Not?

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61 thoughts on “Cloud Business Lifts Amazon’s Profit to a Record

  1. Megan Thurlow

    To understand why A.W.S is so successful it is important to first look at the section in the article that detail A.W.S is the cause for fifty six percent of Amazon’s total operating income. What is even more astonishing is that the 2.57 billion in revenue amounted to less than nine percent of total revenue. Well what does this mean? It means that the cost of maintaining A.W.S is very low, and therefore profitable for the company. This makes sense because cloud computing has become extremely popular over the past few years, and it has allowed many small businesses to advance.

    I believe that A.W.S an keep them profitable in the future as cloud computing is still growing larger and becoming more and more popular within various businesses. Because of how profitable A.W.S has proven to be so far, I believe that it would be extremely beneficial for Amazon to continue to invest in this, as Amazon’s trusted brand name will allow for the company to continue in its growth. It is also important that Amazon focuses on A.W.S so it can stay ahead of its competitors within the industry.

    Reply
  2. Sam Gleim

    Amazon’s cloud computing division, called Amazon’s Web Services (AWS), accounted for less than 9% of Amazon’s total revenue. However, it also accounted for 56% of the company’s total operating income. That is huge. The AWS division generated 56%!! of the company’s profits for the year. The profits were larger than experts forecasted. All thanks to cloud computing.
    Cloud computing is the practice of using a remote network server to store, process, and manage data instead of using a local server. In a nutshell, it is renting computing capacity rather than creating and managing it oneself. It is very appealing to small startup companies that do not have the resources to use a local server. Other benefits include its overall flexibility, businesses can increase/decrease capacity as needed, and employees can access it from anywhere, also increasing collaboration within a team.
    I believe that Amazon’s AWS division can continue to be profitable in the future. Cloud computing is very popular within start-up to medium sized companies, due to its flexibility and accessibility. However, Amazon needs to utilize this opportunity. I personally was not even aware Amazon offered this, and I doubt I am the only one. If Amazon really desires to make bank, and continue to “deliver double-digit revenue growth” it has to up the ante. “Online commerce still represents a relatively small portion of total retail sales,” e-commerce is an opportunity that Amazon should jump on. The company has the means and status to benefit from investing. AWS has shown tremendous profit and it is only a small portion of Amazon’s many ventures, why not expand it?

    Reply
  3. Lina Zhang

    Amazon is profiting from Amazon Web Services, which is a cloud computing business that could make over 10 billion a year in revenue. They found out that cloud computing business is a lot more profitable than North American retail business, because it runs on thinner margins. Amazon decided to work with a business called AWS, which helps start-ups, as well as for big businesses to start on cloud computing services. Also, big companies do not need to buy their own hardware and software, they can just rent computing capacity from AWS.
    I believe Amazon will still profit from cloud computing services in the future, because cloud computing is low in costs, which brings much more profit to them than retail services. But not until there are competitors coming into the market, and offers customers a better deal for the same services Amazon provides. Even though Amazon will face competitions, they can offer something that other small companies can not offer to customers, for examples, secure the privacy to data customers upload to the cloud storage. Customers tend to trust large companies like Amazon, where they will store their private data. In this future, even though there will be competitors coming into the market, Amazon still has a competitive advantage compares to a new entrant as long as they provide better services.

    Reply
  4. Austin Brady

    Amazon is becoming more profitable due to Amazon Web Services (AWS). The article outlines that AWS is a cloud computing service that is used by a lot of start up companies that can’t afford their own computing capacity. It is also used by established companies who want more of it. Cloud service is extremely big business these days, and amazon seems to be playing that hand perfectly. Although the article mentions their retail business isn’t doing so well, AWS and their hardware products are home runs for Amazon. Another reason AWS is so profitable for them is their cost to run it. The article mentions “The profits from AWS represented 56 percent of Amazon’s total operating income, even though the $2.57 billion in revenue from A.W.S. — up 64 percent from a year earlier — amounted to less than 9 percent of total revenue.” This basically means that though AWS is not a superstar in terms of bringing in revenue, it is very inexpensive to run compared to their other services, and is good for their operating income.

    Yes, I believe AWS can keep them profitable in the future. A current trend seems to be that more and more businesses are turning to cloud computing for their storage needs. Amazon is a recognized brand name and seems to excel in the cloud business. If the business world continues to trend towards cloud computing, there is no limit to how successful amazon may be in that venture. Maybe one day Amazon will drop their retail operations and focus completely on cloud, hardware, and their streaming service

    Reply
  5. Tomara Noga

    Amazon is becoming more profitable now mainly due to the services they are providing through Amazon Web Services(AWS). AWS is a cloud service that started over a decade ago is now set in to bring in over $10 billion a year in revenue, it is also the most popular cloud service for startups and this has many big companies interested because they would rather rent the computing capacity rather than deal with their own hard(soft)ware. Their profits and losses have been fluctuating due to investments, but now that people are catching on how large this AWS service is becoming more firms are wanting to latch on to the bandwagon.

    Yes, I do believe that AWS can keep them profitable in the future. I think as long as Amazon continues to deliver above average service and keep their clients happy they will be able to keep them around to continue bringing in profit. In order to do this they will have to be able to keep up to the rapidly growing and competitive environment, but thus far they have managed to and our staying well ahead of their competitors. This service is great for many types of businesses because of how easy it is to use, the lack of space it takes up and how much more affordable it is for them to keep it up to date rather than switching hardware. As the word gets out about the product, their profitability will continue to rise.

    Reply
  6. Arjan Arends

    Amazon is becoming more profitable because of their cloud services that they offer to many new startups and established businesses. They rent out computing capacity to companies that either can’t afford it or don’t want to invest in all the hardware and software that is required. The article mentions how A.W.S. has not only held the company afloat, but propelled it into high profit margins despite a downturn in their industry. The article interestingly points out however, that Amazon flipflops between losses and profits. The author points out that their success often depends on how aggressively they are willing to sink large amounts of money into new business ‘bets.’ This is a warning sign to me and a reason why I probably wouldn’t invest in Amazon. They seem to pull to many risks in an effort to keep their failing retail business afloat. The article mentions how the standard retail market barely pulls in profits and the international market continually operates as a loss. Cloud computing is something that more companies will tap into seeing how it is profitable and I fear that they will once again have to find the next best thing. I would suggest that rather than flip flopping around, maybe Amazon should realize that the retail service isn’t too profitable and should cut it, instead focusing all their money on cloud computing and allowing them to establish themselves as the number one company in this industry. This would give them a competitive edge in an exciting market of the future and establishing themselves now would allow them to distance themselves from their competition that is surely coming in the near future.

    Reply
  7. Evelyn Savolainen

    What is making Amazon more profitable now?

    Amazon is tapping into the expanding cloud storage business. The large tech company is offering cloud storage to businesses. The cloud storage business has seen a huge amount of growth in recent years. When a company has economies of scale, the costs are low. Low costs contributes to being able to offer it to the consumer at a lower price. Additionally, as technology has been adopted for longer, it usually becomes cheaper.

    2. ” Amazon is the rare technology company of its size to still deliver double-digit revenue growth.” Do you feel that AWS can keep them profitable going into the future Why or Why Not?

    Looking to the future, I feel Amazon can continue to be profitable. Double digit profits are likely not sustainable; other competitors may join in after hearing of the profitability. Being a first-mover offers its advantages, however. The company should continue to stay profitable despite competition as it seeks to stay on the edge of innovation. Additionally, many companies have yet to adopt cloud storage, so there is a large portion of the market that is untapped.

    Reply
    1. Blake Furgeson

      Amazon is becoming more profitable now through its cloud business, Amazon Web Services. Amazon Web services is the most popular cloud service for start-ups and for a growing amount of big companies that want to rent computing capacity. Amazon’s cloud business is its most profitable sector and as it grows Amazon will start to become more profitable. Amazon Web Services started over a decade ago and is now predicted to generate around $10 billion in revenue per year. Since larger companies are seeking to rent computing capacity instead of dealing with their own hardware/software it positions Amazon in a spot to gain large profits. Investors are starting to recognize this potential which has been difficult to spot in the past from Amazon’s investment fluctuating their profits and losses.
      I feel that Amazon Web Services can keep Amazon profitable in the future since this sector of Amazon is growing and is more profitable than other sectors of Amazon such as their retail sector. Amazon Web Services is currently the company’s biggest source of profits, even though last year the cloud service only accounted for 9% of Amazon’s total revenue. Investors are impressed with Amazon’s current quarterly profit, which is expected to grow in the future as Amazon’s Web Services are predicted to grow.

      Reply
  8. Michael Forster

    Amazon is profitable due to the success of Amazon Web Services. They offer cloud computing space to companies that would rather not go through the hassle of running their own hardware and software to store important data. Using Amazon’s third party service adds convenience and cuts costs for the businesses involved, and is bringing in huge revenues for Amazon as they expand this part of their business. Other facets of amazon’s business have much smaller margins of success, and some years Amazon was even recording losses in other parts of the corporation. AWS has turned this around and now earns larger margins than any other area of Amazon.
    I believe in the next few years this can’t get anything but bigger, the need for cloud computing solutions in business is only going to grow. Amazon won’t lose customers until cloud storage becomes much cheaper, or many competitors are able to enter the market and be successful.Due to the Internet of Things, businesses are going to have a larger variety of data needed to be stored. As long as Amazon can provide strong security and convenient service the the customers I think they will continue to make huge margins in all areas.

    Reply
  9. Tristan Lansdall

    Amazon has been posting amazing sales for a long time, but their noticeable recent success can be attributed to the web services that they provide. The retail side may make up the majority of the sales, but the web services post much better margins, accounting for better profitability. Now the question is can they sustain this success and growth into the future. I do believe that they will be able to. Amazon said that they have been making significant investments to acquire original content for their streaming service. This is a big move in their battle against other streaming services, particularly Netflix, as they are coming out with their own content. Also hearing that their tablet sales have doubled is a promising sign. Many people may be making the switch from other tablets and services and this is obviously an opportunity to continue growing. Lastly, the fact that Amazon is able to post positive numbers while other tech super powers are not showing as good of numbers, speaks to Amazons ability to deal with adversity in their industry. When all of these factors are taken into consideration along with the fact that the internet of things is changing the world and Amazon is poised to take full advantage of it.

    Reply

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