Amazon 2Q - Profits are flowing

What a week! So many results, much wow. After yesterday's Facebook drama I was quite apprehensive about Amazon's quarterly update. The Seattle-based online retail giant has had a tremendous run, the share price is up 52% this year. That's right, up by more than half since 1 January 2018. Truly wonderful!

Luckily, the results did not disappoint. The e-commerce giant crushed profit expectations for the second quarter, delivering profits of $5.07 per share compared to the $2.49 consensus.

If you think of Amazon as a loss-making circus run by a crazy genius, or a growth drunk corporate which ploughs every dollar it makes back into capital investments, you need to update your mental model. Its operating margin is now 5.6%, the highest rate in more than a decade.



The cloud-computing division, Amazon Web Services (AWS) saw its revenue soar 49 % to $6.1 billion, even as margins expanded. Vestact is an AWS customer, and I can tell you, we like the service and the pricing.

Remember that Amazon sells many of the products consumers find on its website, but millions of small businesses, retailers and manufacturers provide the rest. Amazon collects roughly 15% on those sales. Their acquisition of Whole Foods Market last year also added a new stream of revenue from physical outlets.

Amazon Prime, which now costs $119 per year, has more than 100 million Amazon members. For that, you get unlimited two-day shipping, video content and other perks. Prime customers typically spend twice the amount of a nonmember.

The Amazon management team raised guidance for the year ahead, noting that margins will expand as capital spending on fulfilment and data centres slows a bit, and efficiencies increase.

The results sent the shares 3.2% higher in after-hours trading to $1,866. Amazon's market value is stretching towards $900 billion. The only company worth more is Apple, which reports its quarterly results on Tuesday. The race to 1 trillion is so on!