5 Takeaways From Amazon’s Most Profitable Quarter Yet

Jul 28, 2016

Amazon continued to wow Wall Street with record profits in its second quarter earnings, blowing past analyst expectations on profit and revenue. Here are the five things to know from the e-commerce giant's earnings.

1. Amazon posted record profits of $857 million: That's up 800% from the same quarter in 2015, when Amazon saw $92 million in profits. These massive profits are due to a change in strategy by Amazon CEO and founder Jeff Bezos, who previously reinvested into the company's businesses and bets, which included building new fulfillment centers or products like smartphones and other hardware. But in the past year, Amazon has changed course, posting five straight profitable quarters.

2. India continues to be a huge priority: Bezos usually uses his short statement in the earnings release to call out an area of massive growth in the company. In the past it's been AWS, the company's cloud computing arm, or its subscription service Prime. This quarter, it was India, which is unsurprising considering the massive bet the company has placed on expansion within the country. Earlier this year, the company said it would be investing $3 billion into the new market.

Bezos said in his overall statement in the earnings release:

It’s been a busy few months for Amazon around the world, and particularly in India—where we launched a new AWS Region, introduced Prime with unlimited free shipping, and announced that Prime Video is coming soon, offering Prime members in India exclusive access to Amazon Original Series and Movies—including original content featuring top Indian creators and talent.... The team in India is inventing at a torrid pace, and we’re very grateful to our Indian customers for their welcoming response.

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3. Amazon's cloud is growing fast: AWS saw revenue from its cloud platform jump 58% to $2.89 billion, up from $1.82 billion from the same quarter last year. At the rate it's going, it looks like AWS will surpass Bezos' publicly stated goal of $10 billion in total sales for 2016. AWS also saw $718 million in profits this quarter, which is more the double the profits made in the same quarter in 2015.


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4. Shipping continues to be costly: Amazon spent $3.36 billion on shipping costs over the quarter, up 44% from the same quarter last year. The company has been looking to take over parts of the shipping process over the past year, leasing trucks, planes, and even considering drones to build its own shipping network. If Amazon is able to build this shipping network, it could rely less on the multinational shipping giants, such as UPS and FedEx, and potentially avoid some of the costs provided by these companies.

5. Fulfillment is growing: Amazon expects to open 16 fulfillment centers by the third quarter. Fulfillment cost Amazon $3.8 billion in the quarter, up from $2.8 billion in the same quarter in 2015. Amazon uses its fulfillment centers as warehouses for its own inventory as well as for third-party merchants who want sell to Amazon’s estimated 50 million Prime members. Prime members pay $99 annually to get anything from toilet paper to diapers to books delivered to them in two days or less.

Outside sellers also now account for more than 45% of the total number of items sold on Amazon, a 5% uptick since January. That means the e-commerce giant likely needs to create more space and logistics for these goods. According to a report from 2015, Amazon was operating 104 North American fulfillment centers and warehouses and 69 facilities outside the continent.

Amazon's CFO Brian Olsavsky said on the call that the company will make a "large step up in amount of fulfillment capacity in Q3 of 2016."

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