Amazon's cloud business lifts profit to a record

Amazon delivered a blowout quarter on Thursday, joining Facebook as one of the rare bright spots in a technology sector that has recently produced a string of disappointing earnings reports.

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

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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 per cent 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."

The results were well above the average estimates of analysts surveyed by Thomson Reuters for earnings of 58 cents a share and revenue of $27.98 billion. "I saw the number, and I thought, 'OK, did I read this wrong?'" Magoon added. "The beat was big. On the income side, it was fantastic."

For the last four quarters, Amazon has run in the black, even if it is still not quite as profitable as some technology companies. Facebook, by contrast, reported that its net income for the first three months of the year tripled to $1.5 billion from a year earlier.

The biggest source of the company's profits is Amazon Web Services, the cloud computing business that started just over a decade ago and is now on track to bring in more than $10 billion a year in revenue. AWS, as the business is known, is the most popular cloud service for start-ups and for a growing number of big companies that want to rent computing capacity, rather than run their own hardware and software.

Cloud computing is also much more profitable than Amazon's North American retail business, which runs on thinner margins, and its international retail business, which runs at a loss. The operating income for AWS more than tripled in the quarter to $604 million.

The profits from AWS represented 56 per cent of Amazon's total operating income, even though the $2.57 billion in revenue from AWS - up 64 per cent from a year earlier - amounted to less than nine per cent of total revenue.

On a conference call, Brian Olsavsky, Amazon's chief financial officer, said the company continued to make hefty long-term investments in initiatives, singling out original content for its Prime video service.

In a statement announcing the earnings, Jeffrey P. Bezos, Amazon's chief executive, highlighted the performance of another growing area of investment - hardware devices - though with the lack of detail that has often characterized Amazon disclosures. He said customers bought twice as many Fire tablets during the first quarter as they did a year earlier, and he said the company could not keep its Echo intelligent speaker in stock. Last year, Amazon reached $100 billion in annual sales. Investors believe that even at that size, the company can become a lot bigger because online commerce still represents a relatively small portion of total retail sales.

Online sales in 2016 are expected to reach about $385 billion in the United States, or 8 percent of total retail sales, according to eMarketer, a technology research firm.

Amazon is the rare technology company of its size to still deliver double-digit revenue growth. The company's retail sales in North America jumped 27 percent to almost $17 billion for the quarter, while its international retail sales rose 24 percent to $9.57 billion.

Amazon said revenue in the current quarter is expected to be between $28 billion and $30.5 billion, with operating income between $375 million and $975 million.
©2016 The New York Times News Service