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Amazon’s profit surges, lifted by cloud computing and advertising

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Amazon’s cloud computing, digital advertising and services for third-party sellers on its retail site are more profitable than its central business.
(Leon Neal / AFP/Getty Images)

Amazon.com Inc.’s first-quarter profit surged, beating analysts’ estimates and demonstrating that its focus on cloud computing, advertising and other high-margin businesses continues to pay off.

First-quarter earnings were $7.09 a share, the Seattle company announced Thursday. Analysts had projected $4.67 a share. Revenue rose 17% from the year-earlier quarter to $59.7 billion — in line with the average estimate of analysts compiled by Bloomberg.

Amazon has been buoyed in recent quarters by increasing sales in cloud computing, digital advertising and services for third-party sellers on its retail site, all of which are more profitable than the company’s central online retail business.

The company’s forecast, however, tempered investors’ enthusiasm. It projected operating income in the current quarter of as much as $3.6 billion. That fell short of estimates and suggests Amazon may be spending more than anticipated on its bets for future growth.

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“They’ve kind of reaped the benefit of prior investment, but they caught up now,” Aaron Kessler, an analyst at Raymond James, said before the company’s results were posted. Amazon may have to increase investments again to spur future revenue growth, he said.

Shares rose about 1% in extended trading after the earnings report came out. They had closed at $1,902.25. The stock has jumped 27% this year.

For years, Chief Executive Jeff Bezos pumped most of the cash generated from Amazon’s operations back into new initiatives. That led to prodigious revenue growth, but little income left for investors. Now, with quarterly sales growth of less than 20% for the first time since 2015, shareholders are seeking greater profit. Much of that profit comes from the Amazon Web Services division, which leads in the growing market for selling computing power and data storage.

AWS revenue jumped almost 42% from a year earlier to $7.7 billion. The unit’s operating income was $2.2 billion, or 50% of Amazon’s total.

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Sales in Amazon’s “other” segment, which is mostly advertising, climbed 34% to 2.72 billion. The company’s digital advertising franchise has grown into the third largest in the United States, trailing only Alphabet Inc.’s Google and Facebook Inc., researcher EMarketer estimates.

Amazon kept a lid on spending in the quarter. Shipping costs, a key line item for a company best known for delivering packages, totaled $7.3 billion. That’s up 21% from a year earlier, but well below the pace of the increases seen in recent years.

During the quarter, Amazon started encouraging people who pay for Amazon Prime membership and its free two-day shipping perks to concentrate their deliveries in a single day, a move that enables the company to consolidate expensive deliveries.

Spending on technology and content — which is primarily the cost of payroll for research-and-development work — and expenses to stow, pack and ship inventory, grew at a slower pace than in recent quarters. Amazon’s headcount increased 12% to 630,600 employees.


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