What's going on?
Amazon reported first-quarter earnings that grew way beyond investors’ expectation canopy on Thursday – but its next-quarter outlook was once again unwelcome to the jungle.
What does this mean?
Amazon’s total revenue was 17% higher than a year ago: buoyed by improving retail sales trends in the US, but still the lowest growth in four years. Revenue at the company’s highly profitable cloud computing arm grew 41%, however – helping it to shoot past overall profit predictions and post a record margin. But Amazon’s not wandering lonely: Microsoft, its rival for a $10 billion US Defense Department contract, also reported better-than-expected results on Wednesday thanks to a cloud segment that floats on high.
In an echo of its last three quarterly reports, Amazon’s forecast for this quarter was below what investors had hoped for. Still, if it repeats the profit trick, they probably won’t divorce its stock (tweet this).
Why should I care?
For markets: Amazon may be a whole #mood for investors.
Amazon’s stock price rose slightly in the wake of its bumper profit but uninspiring forecast. As the third-biggest public company in the US (two behind Microsoft, which became a $1 trillion company for the first time on Thursday) and one of the most closely watched, Amazon’s in a Prime position to pump up – or dampen down – the recent stock market party. Its rise may therefore encourage investors to buy up other stocks too.
The bigger picture: Cloud atlas, brick-and-mortar bat.
While Amazon’s cloud computing business generates most of the company’s profit, ecommerce remains a very public battleground. And Thursday’s disappointment for Walmart (the world’s biggest company by revenue) may boost Amazon further. Walmart’s planned sale of UK grocery chain Asda to local rival Sainsbury’s was blocked by British regulators concerned about a subsequent lack of competition. Walmart will now need a new plan (or a new buyer) to free up funds for the grocery war with Amazon: the Everything Store recently slashed prices at its Whole Foods chain again.