Amazon Reaps What It Sowed

Amazon’s market capitalization on Friday reached US$270 billion, surging past Walmart, following a surprisingly strong second quarter earnings report.

That amounted to a $46 billion boost in investor confidence, with shares hitting a record high of $580.57.

Analysts had projected that Amazon would take a hit in its second quarter. Instead, it reported a profit of $92 million, or 19 cents per share, compared with a net loss of $126 million, or 27 cents per share in the year-ago quarter.

Net sales were up 20 percent from last year.

CEO Jeff Bezos credited some new initiatives for the company’s impressive results, including the launch of Amazon Business and Amazon Mexico.

The company also unveiled Prime free same-day during the quarter, rolled out its ninth Prime Now city, and broke its Black Friday record with the first-ever Prime Day, he said. Further, Amazon received 11 Emmy nominations for its hit TV series Transparent, debuted six new kids pilots, and brought its Echo device to general availability.

The company gave developers access to Alexa, the digital assistant software that runs on Echo; opened FBA Small and Light — a low-cost fulfillment option for sellers of items weighing 8 ounces or less; doubled its efforts in India; unveiled AWS Educate; and established new agreements with solar and wind farms in an effort that will surpass its 2016 goal of 40 percent renewable energy, noted Bezos.

Prime-Time Performer

While many consumers expressed disappointment in the deals — or lack thereof — during Amazon’s 20th birthday celebration earlier this month, Amazon reported selling more products on Prime Day than it has done on any Black Friday. The day also netted Amazon the most new Prime customers ever to sign up in a single day.

If Amazon’s goal was to raise awareness and buzz about Prime, its success would not be measured by the number of units discounted for the sale, observed Robert McCarthy, technical advisor at Mobiquity.

“Innovation drives buzz, buzz drives interest, and interest provides the opportunity for conversion,” McCarthy told the E-Commerce Times. “Amazon has confidence it can convert users to Prime when they are shown the benefits — and that’s what their recent Prime Day was all about.”

Amazon understands the value of each and every Prime customer, according to McCarthy. Beyond their subscription fees, Prime customers tend to spend more shopping on Amazon than non-Prime members, he said.

“In fact, they crush non-Prime members in average spending in every dollar category above $50,” said McCarthy. “And as Android can attest, the value of a customer base is in their spend, not necessarily in their volume.”

Count on the Cloud

Amazon has been expanding its ecosystem, which depends on the company’s retail business. But its retail business is still operating at a loss, noted Randy Chou, CEO and founder of Panzura, an AWS partner.

“It’s doing well in large part because its cloud business, Amazon Web Services, grew revenue at 81 percent to $1.81 billion, thanks to strong demand from companies trying to consolidate and simplify IT infrastructure. Amazon as a whole grew revenue by 20 percent,” he told the E-Commerce Times.

As Amazon continues to receive validation for its efforts in building out its ecosystem, it may need to spend more resources to drive its industry-leading cloud service.

“It’s a small slice of Amazon’s total revenue, but accounts for all of its profit,” said Chou.

“AWS is only going to grow and continue to be profitable,” he said. “It’s less than 10 percent of Amazon’s total revenue now, but how long will it be before AWS is half of Amazon’s revenue?”