Amazon Has a Another Blow-Out Quarter
Third quarter sales climb 34 percent to $43.7 billion, although operating income fell 40 percent to $347 million.
October 26, 2017
Amazon impressed Wall Street today when it announced third quarter sales of $43.7 billion, up 34 percent from last year, higher than analysts had expected. Those numbers include $1.3 billion in net sales from Whole Foods Market, which Amazon acquired.
Operating income, however, fell 40 percent, while per-share profits were flat from a year ago at 52 cents a share. That amount was still sharply higher than analysts estimates. Amazon’s heavy investments in fulfillment centers and technology have long kept profits low. In the nine months ended September 30, net income was $1.18 billon, down from $1.62 billion during the same period a year ago.
Although Amazon has long insisted it is is focused on the longterm and is not concerned about short-term fluctuations in its stock price, in recent years the company has come to depend more heavily on stock options as part of its salary packages. The performance of the company’s stock price, therefore, now has more of a consequence on its ability to attract and retain talent. It’s possible, therefore, that the company is making more of an effort to manage earning by lowering expectations and then surpassing them as so many other companies do.
Profits were strongest at Amazon’s high-margin cloud service, AWS, where operating income shot up to $2.98 billion during the nine month period, up from $2.18 billion the year before. Revenues from subscription services such as Amazon Prime showed strong growth, climbing 59 percent to $2.44 billion. Third-party selling services also continued to show strong growth, up 40 percent from the year before.
Worldwide shipping costs continued to weigh heavily on earnings, climbing 39 percent in the third quarter from the year before to $5.4 billion. The company said its operating income in the fourth quarter would between $300 million and $1.65 billion.
Amazon pointed to the dozens of new product and service released during the quarter including three new Echo devices, a new Fire TV device as well as extensive new capabilities added to its Alexa assistant. Alexa will be introduced in India and Japan.
“In the last month alone, we’ve launched five new Alexa-enabled devices, introduced Alexa in India, announced integration with BMW, surpassed 25,000 skills, integrated Alexa with Sonos speakers, taught Alexa to distinguish between two voices, and more. Because Alexa’s brain is in the AWS cloud, her new abilities are available to all Echo customers, not just those who buy a new device,” said Jeff Bezos, Amazon founder and CEO in a press release. “And it’s working — customers have purchased tens of millions of Alexa-enabled devices, given Echo devices over 100,000 5-star reviews, and active customers are up more than 5x since the same time last year. With thousands of developers and hardware makers building new Alexa skills and devices, the Alexa experience will continue to get even better.”
The company has also announced new versions of its Kindle reader and extensive additions to its music and video services as well as new features on its cloud service, AWS.