Improved margins in Europe, Japan help Amazon offset India losses

India might continue to be a drag on Amazon's profits but this didn't stop the company from posting a record profit of $2.5 bn in Q2

After coming close to hitting $1 billion, Amazon's international losses have fallen for the third consecutive quarter as operating margins in markets such as Europe and Japan grew, offsetting losses the company continues to make in India.  

Amazon reported a loss of $494 million on sales of $14.6 billion from international markets (outside North America) for the three months that ended June 2018. The company had previously attributed the growth in its international losses to its ramped up investments in India. 

"We have seen over the last few quarters, improved operating margins internationally. In places like Europe and Japan, we're seeing fixed headcount, operations costs, infrastructure costs, and also marketing working to be very efficient," said Brian Olsavsky, the chief financial officer at Amazon. "But we continue to invest. We're investing in India obviously, and have seen good traction there," he added. 

In May this year, Amazon made a fresh investment of Rs 26 billion (approx $390 million) in Amazon Seller Services, its largest unit in India. The infusion brought the total investment the company has made in the unit up to around $3.3 billion since the company began operating in India five years ago. 

At the same time, Amazon continues to plough money into its other units such as payments, cloud and even its technology services division.

While a large portion of Amazon's spend goes into subsidising the cost of products on its platform, a way to bring more customers to experience shopping from it, it is also investing heavily on Prime -- building logistics capabilities for expedited deliveries, increasing warehousing space for storage of products on behalf of sellers and even in video content targeted at Indian customers.

Prime has become Amazon's biggest weapon against Flipkart, its biggest rival -- which in May announced that it would receive a $16 billion investment from Walmart in exchange for around 77 per cent stake. The two companies are currently seeking the approval of India's competition regulators and expect the deal to be closed before the end of the current calendar year.

Amazon and Flipkart are locked in an intense battle for dominance in India's fast-growing e-commerce market, which is estimated to grow to $100 billion by 2020, up from around $20 billion currently.

India might continue to be a drag on Amazon's profits, but this didn't stop the company from posting a record profit of $2.5 billion in the second quarter. The company's share was up more than 3 per cent in after-hours trading on Thursday despite its $52.89-billion revenue being a bit below analysts' expectations. 

Any disappointment with Amazon's Q2 results was offset by the company's 1,286 per cent increase in profits on a year-on-year basis. It is this healthy profit that is allowing Amazon to invest so heavily in developing a market like India, with its investors hardly batting an eye when the company ploughs billions of dollars into the country.