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Once again, AWS is the reason Amazon made any money at all. AWS earned $1.1B in profits for the quarter.. a 25% profit margin.

tdb7893 9y ago
Hopefully with Microsoft and Google getting in the game we'll get some competition and that margin will reduce
- davidkuhta 9y ago
  ... or that the margin stays the same, and they're able to further innovate and offer additional value!
- rajnathani 9y ago
  MSFT also had earnings today. They beat with a (sustained) strong growth in their cloud biz.
- s17n 9y ago
  Question is whether those companies will culturally be able to compete in a low-margin space. I don't know anything about Microsoft but wrt Google I've often thought that the insane margins on the search ads business have made it institutionally difficult for the company to take any low-margin business seriously. Amazon on the other hand has been all about razor thin margins since day one.
  - sangnoir 9y ago
    > Question is whether those companies will culturally be able to compete in a low-margin space. 25% is a fat margin: why would you say this is a low-margin space?
    - s17n 9y ago
      Post I replied to was imagining a world where margins go down, which seems very plausible, compute is a commodity.
- Analemma_ 9y ago
  I don't know... on Microsoft's earnings call today, a couple of finance suits specifically asked them about how they intend to grow cloud margins, so I don't think this is incoming. Amazon/Microsoft/Google tried a brief cloud price war a few years back and it all led to them being right back where they started, so I wonder if there's a MAD-ish incentive not to do that again.
mistermann 9y ago
Not making money is a conscious choice. Growing this fast at scale is insane, Amazon scares me.
- hobofan 9y ago
  Out of all the big ones Amazon is the one I'd want the least to make much money. They just seem to have the least human view of their customers, with some products they've built completely centered around viewing their customers as consumer-machines.
  - whoisjuan 9y ago
    Compared to Apple that artificially created a consumption cycle of one 700 USD (Now 1000 USD) device per year?
    - mistermann 9y ago
      Apple seems to lack the expertise to enter new markets and compete with entrenched players.
      - sib 9y ago
        Motorola, Nokia, and Blackberry would beg to differ...
        mistermann 9y ago
        The gap between computers and phones is a lot smaller than cloud services and groceries.
    - hobofan 9y ago
      Yes, _one_ device, and with the rather long support of their devices, you definitely don't have to buy it yearly (I get your point, tough). Every product Amazon presents, is in a very obvious way geared towards making people consume more every day as if that were the biggest joy people have in their life. Ordering from Amazon via image recognition was one of the only unique features, the Fire Phone had. Why would I as a person deciding between smartphones want that? Alexa was presented in the same way, and then there obviously is the Dash button.
alehul 9y ago
Correct me if I'm wrong, but isn't that just due to their accounting preferences? Amazon has had the capability of making profit for years, but prefers to expense everything off in an effort to grow rather than pay increased taxes. Their skyrocketing market cap hasn't been due to a change in the company's direction so much as investors gradually realizing this strategy and the raw growth potential of where Amazon has positioned itself.
- deleted 9y ago
  [deleted]
- jgalt212 9y ago
  perhaps, but AWS is so profitable even AMZN cannot reinvest all its proceeds.
- kgwgk 9y ago
  > prefers to expense everything off What does that mean?
  - alexbeloi 9y ago
    There are different accounting strategies for when you recognize income/expenses. Say you land a long term contract to provide a service for 5 years and you need to buy extra hardware to fulfill this service, you can choose to expense the hardware immediately in the first year while you let the earnings come in over the next 5 years. In the first year you would be taking a huge loss (on paper), and in the following four years you would see larger than average profits (on paper). Alternatively, you could acknowledge the full value of the contract immediately. Or another alternative is to expense the hardware over time. I'm not an accountant, but this analogy is my basic understanding of the flexibility that companies have.
    - URSpider94 9y ago
      Companies don’t actually have flexibility on this. There are Generally Acceptable Accounting Principles (GAAP) that govern how you must handle various kind of expense or profit. In the case you provided, the revenue must be booked when it is payable under the contract - if it’s invoices in yearly installments, then it comes onto the books at that point. The capital expense for the equipment must be depreciated over its useful life, not when it is purchased.
adventured 9y ago
Their business outside of AWS is generating immense cash flow. That's a lot more important to Amazon's business than most headline measures of profitability. Overall they produced $8.1 billion in free cash flow for the prior 12 months and $17.1 billion of operating cash flow. That's what enables them to continue to invest so heavily.
vm 9y ago
On the other hand, Amazon generates a lot of free cash flow. Roughly $10B worth last year or 7% of revenue (or an impressive 21% of gross profit). It earns this healthy margin because customers pay Amazon before Amazon pays suppliers. Normal companies have to fund their businesses by raising debt or equity, whereas Amazon gets free loans from merchants. Exceptional way to fund growth.

tdb7893 9y ago

Hopefully with Microsoft and Google getting in the game we'll get some competition and that margin will reduce

davidkuhta 9y ago
... or that the margin stays the same, and they're able to further innovate and offer additional value!
rajnathani 9y ago
MSFT also had earnings today. They beat with a (sustained) strong growth in their cloud biz.
s17n 9y ago
Question is whether those companies will culturally be able to compete in a low-margin space. I don't know anything about Microsoft but wrt Google I've often thought that the insane margins on the search ads business have made it institutionally difficult for the company to take any low-margin business seriously. Amazon on the other hand has been all about razor thin margins since day one.
- sangnoir 9y ago
  > Question is whether those companies will culturally be able to compete in a low-margin space. 25% is a fat margin: why would you say this is a low-margin space?
  - s17n 9y ago
    Post I replied to was imagining a world where margins go down, which seems very plausible, compute is a commodity.
Analemma_ 9y ago
I don't know... on Microsoft's earnings call today, a couple of finance suits specifically asked them about how they intend to grow cloud margins, so I don't think this is incoming. Amazon/Microsoft/Google tried a brief cloud price war a few years back and it all led to them being right back where they started, so I wonder if there's a MAD-ish incentive not to do that again.

mistermann 9y ago

Not making money is a conscious choice. Growing this fast at scale is insane, Amazon scares me.

hobofan 9y ago
Out of all the big ones Amazon is the one I'd want the least to make much money. They just seem to have the least human view of their customers, with some products they've built completely centered around viewing their customers as consumer-machines.
- whoisjuan 9y ago
  Compared to Apple that artificially created a consumption cycle of one 700 USD (Now 1000 USD) device per year?
  - mistermann 9y ago
    Apple seems to lack the expertise to enter new markets and compete with entrenched players.
    - sib 9y ago
      Motorola, Nokia, and Blackberry would beg to differ...
      - mistermann 9y ago
        The gap between computers and phones is a lot smaller than cloud services and groceries.
  - hobofan 9y ago
    Yes, _one_ device, and with the rather long support of their devices, you definitely don't have to buy it yearly (I get your point, tough). Every product Amazon presents, is in a very obvious way geared towards making people consume more every day as if that were the biggest joy people have in their life. Ordering from Amazon via image recognition was one of the only unique features, the Fire Phone had. Why would I as a person deciding between smartphones want that? Alexa was presented in the same way, and then there obviously is the Dash button.

alehul 9y ago

Correct me if I'm wrong, but isn't that just due to their accounting preferences? Amazon has had the capability of making profit for years, but prefers to expense everything off in an effort to grow rather than pay increased taxes. Their skyrocketing market cap hasn't been due to a change in the company's direction so much as investors gradually realizing this strategy and the raw growth potential of where Amazon has positioned itself.

deleted 9y ago
[deleted]
jgalt212 9y ago
perhaps, but AWS is so profitable even AMZN cannot reinvest all its proceeds.
kgwgk 9y ago
> prefers to expense everything off What does that mean?
- alexbeloi 9y ago
  There are different accounting strategies for when you recognize income/expenses. Say you land a long term contract to provide a service for 5 years and you need to buy extra hardware to fulfill this service, you can choose to expense the hardware immediately in the first year while you let the earnings come in over the next 5 years. In the first year you would be taking a huge loss (on paper), and in the following four years you would see larger than average profits (on paper). Alternatively, you could acknowledge the full value of the contract immediately. Or another alternative is to expense the hardware over time. I'm not an accountant, but this analogy is my basic understanding of the flexibility that companies have.
  - URSpider94 9y ago
    Companies don’t actually have flexibility on this. There are Generally Acceptable Accounting Principles (GAAP) that govern how you must handle various kind of expense or profit. In the case you provided, the revenue must be booked when it is payable under the contract - if it’s invoices in yearly installments, then it comes onto the books at that point. The capital expense for the equipment must be depreciated over its useful life, not when it is purchased.

adventured 9y ago

Their business outside of AWS is generating immense cash flow. That's a lot more important to Amazon's business than most headline measures of profitability. Overall they produced $8.1 billion in free cash flow for the prior 12 months and $17.1 billion of operating cash flow. That's what enables them to continue to invest so heavily.

vm 9y ago

On the other hand, Amazon generates a lot of free cash flow. Roughly $10B worth last year or 7% of revenue (or an impressive 21% of gross profit). It earns this healthy margin because customers pay Amazon before Amazon pays suppliers. Normal companies have to fund their businesses by raising debt or equity, whereas Amazon gets free loans from merchants. Exceptional way to fund growth.