Amazon may be known as the face of e-Commerce, but the retailer’s Q1 results once again show that cloud services remain its true golden goose.
Revenues from the Amazon Web Services (AWS) platform amounted to a whopping $3.66 billion, powering the online giant’s $724 million net income and $1.01 billion operating income.
In its Q1 earnings report, Amazon revealed:
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Net sales jumped 23% to $35.7 billion, ahead of an expected $35.3 billion;
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Revenue from Amazon Prime rose 49% to $1.9 billion;
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Earnings per share (EPS) climbed from $1.07 to $1.48, well ahead of the anticipated EPS of $1.12; and
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AWS sales increased 42% year-over-year.
Even as competitors such as Microsoft, Google parent Alphabet, IBM and Oracle ramp up their cloud service offerings, Amazon continues to corner approximately 40% of the cloud market. But as Amazon continues innovating and investing money back into its products and services, it’s going to need every cent of those AWS sales. Amazon’s fulfillment costs amounted to $4.7 billion in Q1, up almost exactly $1 billion from last year. The e-Commerce giant also revealed plans in January to create 100,000 new jobs in the U.S. by June 2018.
Another revenue driver, Amazon Prime, remains a major factor in offsetting the hefty costs of fulfillment and fostering customer retention. Although Amazon has never officially released its Prime membership totals, the subscription service has reportedly jumped 38% from last year, reaching 80 million members, according to data from Consumer Intelligence Research Partners.
Prime continues to be of tremendous value when it comes to driving purchase amounts. Prime members spend $1,300 per year with the e-Commerce giant, on average, compared with $700 for non-Prime members, according to the report.
Overseas Expansion Shows Promise
The first quarter saw more overseas expansion for Amazon, with the brand acquiring Dubai-based e-Commerce marketplace Souq for $650 million. This marks a major milestone from a global perspective, marking Amazon’s first move into the relatively insular Middle Eastern market.
Additionally, CEO Jeff Bezos expressed optimism about the retailer’s continued expansion into India, a $5 billion endeavor:
“Our India team is moving fast and delivering for customers and sellers,” Bezos said in a statement. “The team has increased Prime selection by 75% since launching the program nine months ago and increased fulfillment capacity for sellers by 26% already this year. It’s still Day 1 for e-Commerce in India, and I assure you that we’ll keep investing in technology and infrastructure while working hard to invent on behalf of our customers and small and medium businesses in India.”
Stock Continues Climb, But Is It About To Peak?
Amazon’s stock price is up 22.5% since the start of 2017, and has jumped 53% in the past 12 months. Despite the windfall, investment companies Pacific Crest Securities and Raymond James actually downgraded Amazon from “buy” to “hold,” with the former noting this is “As good as it gets (for now).”
“The stock is approaching our $961 (per share) target and stepped-up competition may dampen near-term upside,” Pacific Crest analyst Edward Yruma wrote in a note to clients.
Still, just seven of 40 analysts tagged Amazon with a “hold” rating, while 33 rate it “buy” or “overweight,” (which means analysts believe the stock has higher value than it is presently worth), according to FactSet.
