Global Business

Amazon Sales Jump 25% But Profits Disappoint

CFO Brian Olsavsky defends the company's heavy spending, saying "We are continuing to invest in businesses that ... can last for decades."
Matthew HellerJuly 28, 2017

Amazon posted another big quarterly sales jump, with most of the growth coming from outside its traditional e-commerce business, but its continued high spending cut into the bottom line.

Such ventures as logistics, Prime memberships and cloud computing powered Amazon’s second-quarter results, which showed net sales increasing 25% to $38 billion over the year-ago period. Earnings per share totaled 40 cents, or $197 million, down from $1.78 per share, or $857 million, and its smallest profit in nearly two years.

Analysts had predicted earnings of $1.42 per share. In trading Friday, Amazon shares fell 2.4% to $1,021.14, retreating from levels that, albeit briefly, had made CEO Jeff Bezos the world’s richest person, ahead of Bill Gates.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“Despite bringing home surprisingly high revenue — analysts had expected a 22.3 percent jump instead of the actual 25 percent — the company … disappointed Wall Street investors hoping for more profit,” the Seattle Times said, noting that strong revenue doesn’t necessarily translate into consistently high earnings as Amazon focuses on reinvesting cash flow into growth.

The company has been spending significantly to build up its original video business and adding warehouses and delivery capacity for its retail business and data centers for cloud services. Amazon said its operating income could swing to a loss in the third quarter but CFO Brian Olsavsky defended its strategy.

“We are continuing to invest in businesses that will achieve four goals … Customers love them, they can grow to be large, they have strong financial returns and they are durable and can last for decades,” he said in an earnings call.

Fueling second-quarter growth were the logistics business — the money Amazon collects from third-party merchants — which saw a 38% increase in sales to $7 billion; Amazon Web Services (up 42% to $4.1 billion); and subscriptions to the Prime loyalty program and other services (up 51% to $2.16 billion).

With $16 billion a year in sales, AWS is the world’s largest cloud computing venture.

In comparison, direct sales of retail products rose by 17% to $23.75 billion. The business still accounts for most of Amazon’s revenue, but that share is shrinking as other businesses outpace its growth.