Amazon
(AMZN) puts out two sets of numbers in its quarterly financial reports that
consistently generate awe and indignation. The first: a soaring revenue number.
The second: a tiny profit or—more often in recent years—a loss.
The past
quarter was no different. Amazon showed nice sales growth in Thursday’s
earnings report, bringing in $19.34 billion—23 percent more than it did a year
ago, and slightly better than analyst’s expectations. It’s also a bit better
than Google, (GOOG) which grew 22 percent last quarter, and way better than
EBay’s (EBAY) 13 percent revenue growth. Yet Amazon also reported a net loss of
$126 million, the company’s biggest loss since 2012. This makes sense when you
remember that Jeff Bezos is pouring money into everything from same-day grocery
delivery to video-game development to Amazon’s own disastrously reviewed
smartphones. The profits from the retail business are erased by investments in
the company’s newer dalliances.
As is often
the case on earnings day, the dual numbers stirred concern among investors.
Amazon’s stock price dropped more than 11 percent in the immediate aftermath of
the release of the earnings report.
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But this is
only a view of what’s happening at the surface. Here are some other numbers
that people who look deeply at the company will be watching:
• Revenue
from Cloud Services: Amazon’s cloud unit, AWS, is one of the fastest-growing
software businesses of all time, as Bloomberg Businessweek‘s Ashlee Vance
recently wrote. It’s also in a hotly contested market. Google, Amazon, and
Microsoft (MSFT) have been slashing prices to lure customers from one another.
Amazon doesn’t directly break out its AWS business, but one line in the
earnings statement—North American “Other” revenues—broadly reveals its health.
The category includes such smaller revenue items as advertising and credit-card
revenue, which analysts mostly ignore.
For the
second quarter, revenue from “other” was $1.17 billion, up 38 percent from the
same quarter last year. In the first quarter of this year “other” revenues grew
60 percent. So the growth of the cloud business is slowing, probably a
reflection of the frenzied competition Amazon is facing. Amazon says it has cut
prices of its cloud services from 28 percent to 51 percent, depending on the
specific service.
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The slowdown
doesn’t mean Google is taking market share away from Amazon, though. Amazon
says that usage of cloud services are up 90 percent. What it does mean is that
users of commodity cloud services such as storage are seeing a nice gift from
the price war, which affects Amazon’s revenue.
• Active
Accounts: Amazon doesn’t include information on active customers in its
earnings report, but the company’s chief financial officer, Tom Szkutak, gives
the goods in briskly delivered sermons during the company’s investor calls.
This quarter, Szkutak said, Amazon had 250 million active accounts, up 16
percent from last year. That’s solid growth. As a point of comparison, EBay
just published 14 percent user growth. Once again, Amazon is growing faster
than the competition, which can pay dividends for many years to come.
• Unit
Growth: Analysts like this metric because it captures the full breadth of
activity on the site—not just the goods Amazon sells but the goods Amazon
allows other vendors to hawk on its third-party marketplace, along with the
sales of digital bric-a-brac such as e-books and Kindle Fire apps. Again,
Szkutak hands out this number during his conference call. This quarter, it was
23 percent, about par with results in March.
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•
Retail-Only Gross Profit: Amazon makes it tricky to figure out the health of
its retail business—you know, what the company did before it started selling
phones, tablets, and cloud services. Analysts come up with retail-only gross
profit through some tricky math: net sales, minus the cost of sales minus the
AWS revenues the analysts glean from the “other” category. This quarter,
retail-only gross profit was $4.78 billion, a 31 percent jump from a year ago.
In March, the growth rate of retail-only gross profit was 27.3 percent, so the
retail business is growing steadily. Again, that’s good news for long-term
shareholders.
To sum up:
Amazon brought in revenue but widened its losses. Its fantastically successful
cloud business grew a little slower, and its core retail business grew a little
quicker. It expanded its user base, and its overall activity on the site
continues to grow at a good clip. At first glance, investors weren’t thrilled.
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