Amazon began as a bookseller and is today best known as an e-commerce giant. But it's becoming clear that Amazon is morphing once more. This time it's becoming one of the most successful cloud computing companies around, one that also happens to sell physical goods online.
Because even with its massive scale, Amazon has never been consistently profitable, in large part because the margins in the world of online merchants are razor thin. To generate real upside, Amazon has been trying to build new, more profitable businesses on top of that massive consumer base: branching out into creating its own phones, tablets, and streaming media devices. And yet with all that effort aimed at the average consumer, Amazon's best new division is, ironically, its cloud services that provide the infrastructure backbone to companies as big as Netflix and Spotify. Amazon Web Services, which the company began breaking out as a separate category in its financial statements two quarters ago, was once again the focus during its fiscal third-quarter earnings released today.
The company reported net revenue of $25.4 billion and net income of $79 million, or $0.17 a share. That means revenue grew 24 percent compared with the same period last year, while income swung positive from a net loss of $437 million, or $0.95 a share, in the year-ago quarter. AWS reported $2.1 billion in revenue and $521 million in profit. That's a 78 percent rise in revenue and 432 percent rise in profit over last year. Overall, AWS now accounts for around 8 percent of Amazon's total revenue, but nearly half of its total profits, which puts it close to matching the performance of its entire North American e-commerce division.
Amazon Web Services saw surging sales and profits
The results beat Wall Street estimates, which had Amazon at a loss of $0.13 a share on revenue of $24.9 billion, according to analysts surveyed by Thompson Reuters. Investors responded with enthusiasm, sending shares sky rocketing more than 10.5 percent to nearly $564 a share. Amazon stock has been up more than 80 percent over the last 12 months.
"There is a better understanding on the street now about how large Amazon Web Service can be," Colin Sebastion, an analyst with the investment bank Robert W Baird, told CNBC. "Each quarter that goes by, I think we all reset our expectations higher, as there is still meaningful growth there, and a significantly large market." Last quarter AWS grew its revenue over 80 percent and quintupled its operating income.
There were few solid expectations of how Amazon would fare on income, as it often swings wildly between profit and loss. It posted a loss of $544 million back in the third quarter of 2014, a stumble driven in part by weak sales of its Fire Phone. Last quarter Amazon's North American retail business managed to outperform, helping it squeeze out $90 million in profit on $23 billion in revenue.
This time, it appears Amazon, the company infamous for spending money to make money, surprised Wall Street again.