After years of years of ploughing cash back into services, Amazon’s latest results show those gambles on subscription and cloud-computing are paying off, fuelling its transition from retailer to platform.
Words by Jennifer Faull and Seb Joseph
The online juggernaut blew away investors off the back of revealing it made a surprising $92m in the three months to July compared to the $126m it lost a year ago. It’s a stunning turnaround that not only sent Amazon’s stock market value ($267bn) soaring past Walmart ($233.5bn) but importantly suggests that all that growth and investment is starting to pay off.
Quarterly sales rocketed almost 20 per cent to $23.2bn, spurred by an impressive 25 per cent year-on-year hike in the US. While Amazon’s revenues have soared over the last two decades, it’s telling that two of its recent investment projects – Prime and Amazon Web Services – played a role in putting it on the path to profitably in the quarter.
The retailer said much of its top line growth is now fuelled by Prime adoption, which is faster outside the US and hailed this month’s Prime Day global flash sale for delivering higher sign-up rates than it’s ever seen.
On the other side of the coin, the company’s cloud-computing arm, which only showed signs of growth last quarter, is now the fastest growing part of Amazon’s overall business. Its profits were up almost 50 per cent from the pervious quarter, and a mammoth 407 per cent year-on-year.
Amazon is seeing greater demand for its cloud services, which have accumulated more than one billion customers, and is able to call on e-commerce expertise that rival cloud businesses from Google, Microsoft and Salesforce aren’t yet able to match.
“Innovation [for AWS] is accelerating, not decelerating,” Amazon’s chief financial officer Brian Olsavsky told analysts on a conference call yesterday evening (23 July). “We had over 350 significant new features and services and we believe that's what resonates with customers. While pricing is certainly a factor we don't believe it's always the primary factor; in fact what we hear from our customers is that the ability to move faster and be more agile is what they value.”
Given the media fanfare around last week’s Prime Day, it was unsurprising that the subscription service was a main feature of an earnings call focused on proving it has the right formula to become more than just a retailer. Amazon has made no secret of its bid to become all things to all people, with varying degrees of success in smartphone and original content production testament to its ambition.
In Prime, the business has a product it can build as a bundle of benefits; from its Prime Now short-term deliveries to streaming videos, the service is geared to nurture purchase loyalty from a smaller but guaranteed pool of customers who are more likely to repeatedly spend above a specific amount.
“There's a lot of pipeline of invention: things like Prime Instant Video, Prime Music; all feed the Prime pipeline and Prime ecosystem, if you will. They work great with our devices by the way. They drive other non-media sales,” added Olsavsky.
It’s why Prime Day, while much derided on social media for its top selling services of towels and food containers, will return. Amazon did announce that it shifted over 47,000 televisions and 41,000 Bose headphones during the sale and Amazon’s financial chief was quick to hail it as a strong platform for next year’s Prime Day.
“If you look at Prime Day, we're thrilled with the results of Prime Day. It surpassed all of our expectations. Any metric we look at, everything was a huge success. Customers save millions. New Prime members signed up in higher rates than we've ever seen,” he added.
According to brand tracking firm YouGov, Amazon saw a spike in ‘word of mouth’ (if a person hears about the brand in the past two weeks), recommendation and ad awareness – particularly the latter thanks to Amazon’s national Prime Day campaign. However, perhaps pointing to the vast array of products on offer, YouGov’s ‘purchase consideration’ score for the retailer remained relatively stagnant during the period.
Amazon’s stellar profit may be shortlived; the company has no plans to deviate from its tried and tested method of pumping cash back into its infrastructure with plans for more original content, new Kindle services and its festive push already underway. But unlike previous times, Amazon’s has clearer sight of rewards beyond retail and is aggressively pursuing them.