What's going on?
Who’s delivered more than $1 billion in profit four quarters in a row? Amazon, that’s who. On Thursday, its third-quarter results beat expectations – but a mixed outlook led the stock to fall 6% (tweet this).
What does this mean?
Amazon’s profit last quarter was stratospheric, in part thanks to Amazon Web Services, its cloud computing segment. That business grew revenue 46% versus the same time last year – impressive, considering Amazon’s already the largest player in cloud computing, and rival Microsoft’s jostling for position (on Wednesday, it said its own cloud business grew by almost 90%). Continued growth in cloud city is important for Amazon’s profit because it has low incremental costs – meaning it’s pretty easy for Amazon to sell more services to customers without spending much more money.
Ecommerce wasn’t great, for a change: sales grew by 35% in North America but only 13% internationally, below expectations – perhaps hit by high-profile tech issues during Amazon’s flash sale day in July.
Why should I care?
For markets: Investors are still looking for a hero.
Amazon’s stock’s risen over 50% this year – bested only by Netflix among the major tech companies. US tech stocks account for about a quarter of the market, and some investors hope a few good quarters from big tech could stem or even reverse the market’s recent decline. But Amazon isn’t playing ball: its stock fell as it said next quarter’s sales would be lower than investors forecast – with one reason being unfavorable exchange rates.
The bigger picture: Getting loud in the cloud.
Cloud computing’s attractive because it generates a steady stream of cash via subscriptions – which is probably why big companies are going for hell for leather after a slice of the fast-growing pie. Amazon’s been busy cutting prices (surprise, surprise) to win new customers and encourage existing clients to buy additional services – and its competitors in advertising are worried it might now be trying the same tricks there…