
Amazon Posts Another Blockbuster Profit - kartD
http://www.wsj.com/articles/amazon-posts-another-blockbuster-profit-1469736704
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DarkTree
Just 5 years ago, as a freshman in college, I was alternating between Amazon
and eBay to find the cheapest price for textbooks. This was the first time I
ordered anything off of Amazon, and it was their bread and butter; a book.
Fast-forward to present day and I order almost everything off of Amazon, even
if I can get it at a store nearby. Why? Because products reviews have grown to
be essential in my psychology for buying, and it's very easy to wait just two
days for the product to arrive at your doorstep. And I haven't used eBay in
years.

~~~
freyir
Online reviews were a revelation for me, but they're increasingly being gamed
on Amazon (fake reviews, people getting free products in exchange for positive
reviews, etc.). I've bought some really mediocre products lately that had
amazing reviews.

I've also noticed the quality control has gone down the tubes, with 3rd party
sellers shipping counterfeit goods. Amazon doesn't seem to be interested in
regulating this.

If there was a company with Amazon's shipping speed but without all the shady
3rd party sellers, I don't think I'd use Amazon again.

~~~
stormbuilder
Generally speaking I only read 3 star reviews.

5 star and 1 star reviews are usually garbage - either fluffed fake reviews,
or reviews outraged about something unrelated with the quality of the product
itself.

~~~
BashiBazouk
I find 1 star reviews quite useful. If all the reviews are shipping
complaints, the lemon rate of the product is probably low.

~~~
newscracker
There's a lot of gaming on those low star ratings by competitors. The
trustability of reviews on Amazon has sunk so low over the years that for many
products, reading many (tens or several tens of) reviews across star ratings
is what may help have some idea about the product's quality and the seller.

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kartD
Quick article summary

"For the second quarter, Amazon recorded an $857 million profit, or $1.78 a
share, compared with $92 million, or 19 cents, a year earlier, as sales rose
to $30.4 billion from $23.19 billion. Analysts were expecting a profit of
$1.11 a share, according to the average estimate compiled by Thomson Reuters.

Amazon had forecast sales of between $28 billion and $30.5 billion.

Helping prop up results was the Amazon Web Services cloud computing division,
which rents computing power to other companies. AWS increased revenue to $2.89
billion, up from $1.82 billion a year earlier. The unit appears on track to
exceed Amazon Chief Executive Jeff Bezos’s goal of reaching $10 billion in
sales this year."

~~~
JoshGlazebrook
That last part shouldn't be hard with the overpriced bandwidth costs AWS
charges.

~~~
freyir
If it's overpriced, presumably customers will shop elsewhere or avoid cloud
services altogether?

~~~
adventured
It's significantly overpriced, though most services don't demand enough
bandwidth to make it a big enough cost disadvantage to turn them away from eg
AWS. That isn't the case for all services, but it is the case for most. If
you're big enough to run up a large bandwidth bill on AWS, more often than not
you can afford it; if you're not big, you won't typically be running up that
kind of bandwidth bill. There are cases that are the exception of course (high
traffic services with poor business models, video heavy sites with weak
monetization, etc).

I've seen good arguments that the cloud services keep bandwidth costs high on
purpose to restrict the types of services that attempt to use (or abuse) their
networks. I haven't seen any other great arguments that explain the massive
gap between a typical large dedicated host and eg Azure / Google / AWS (all of
which can command far cheaper bandwidth costs).

~~~
vgt
I can speak for Google, not AWS or Azure. Google's network is smart in several
ways:

\- If you are trying to send a packet from one Google AZ to another, it will
traverse Google network only, never hitting the public web.. without a VPN/VPC
setup

\- If you are trying to reach a service on Google Network, you hit the Google
frontend at one of the many Points of Presence around the world, from which
point it's a straight path to nearest DC

\- If you are trying to reach a customer from your VMs on Google, your packet
will be taken as close to your customer as possible on Google backbone

For "cheaper egress" there are CDN providers, and both AWS and Google have
their own CDNs as well.

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Analemma_
This is the point where things begin to look really scary for every retail
company not named Amazon. Amazon's previous two decades of tiny profits have
all been in service of building a massive logistics infrastructure (and
locked-in customer base, via Prime) that no one else can touch, and now it's
paying off. It's going to be very difficult to catch up to them - even if
someone was willing to spend a lot of money to do it, Amazon could easily go
back to the old regime of just reinvesting more into its operations; with
these last three quarters, they've shown the naysayers that it can be made to
pay dividends, and so I think Wall Street would be patient if they returned to
that route.

~~~
asmithmd1
They still have tiny profits in the retail side from North America and
actually lose money in rest for the world.

Taking all those orders in North America and shipping all that stuff made less
money last quarter - $708 Million; than they made running AWS - $718 Million.

Time to spin off that loser business of shipping stuff to people's houses.

[http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-
new...](http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-
newsArticle&ID=2189731)

~~~
trhway
>Time to spin off that loser business of shipping stuff to people's houses.

or start doing it by drones, flying or crawling, doesn't matter.

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paulpauper
So much for all those failed predictions in 2014 of amazon never being
profitable, being a bubble, etc. Amazon's cash flows are very strong, they
have huge growth, and market dominance..whats what matters.

Amazon is the online version of Walmart but much bigger and much more
potential...they are taking over retail, both online and offline...just
amazing

~~~
coldcode
Their PE ratio is 300. That's not profit that's wishful thinking. I will be
amazed if they ever get to 100. Today prices are based entirely on dreams.
Sure someday they might make lots of money. Apple makes more profit every few
days. With AWS they would have nothing.

~~~
yomly
>With[out] AWS

This is such a moot point.

That Amazon a "retail" company was able to roll out Kindle and popularise E
readers (while handling distribution)...

That Amazon were able to roll out AWS, a highly profitable cloud platform...

That Amazon are in the process of launching automated drone delivery...

These facts are not coincidence, they are inextricable from Amazon being what
it is - a tech company that happened to start with Retail as its cash cow.
It's an innovative company that is not content sitting around getting fat the
second it reaches some sort of comfort zone, and until running a company like
this becomes the norm, they can afford to command higher PE ratios while
people anticipate their next big blockbuster product.

To compare Amazon to Walmart, a company whose be all and end all is Retail, is
missing the bigger picture.

(nb that's not to say that their current trading ratio isn't overinflated)

~~~
brianwawok
Except Walmart has Walmart labs so they are at least a tiny bit tech :)

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samfisher83
If you look at their accounting statements. They made more money from AWS than
their entire selling operation.

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rattray
Can you elaborate / share the numbers?

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samfisher83
Net Income From

North America Retail Sales = $702 Million

International Retail Sales = $-135 Million

AWS = $718

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w1ntermute
Q2 2016 earnings press release from Amazon: [http://phx.corporate-
ir.net/phoenix.zhtml?c=97664&p=irol-new...](http://phx.corporate-
ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=2189731)

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jordache
Got $99 from us with a Prime membrship.

NetFlix raising it's monthly price to $10.99 and we only get a sub par library
of content..

With Prime we pay less and get much more

~~~
dangrossman
> sub par library of content

In the past year, they've produced 600 hours of new original content that
earned 54 Emmy nominations, and you get it for less than the price of one
premium cable channel.

Nobody, neither Netflix nor Amazon, is going to continue to have the kind of
library Netflix did during its peak as a catalog of old movies. The lax and
low-priced licensing deals they got back then are never coming back, not with
the rise of online streaming as a mainstream channel for media: everyone's
building their own content silos, everyone's aiming for exclusive control of
something so you pick theirs, and everyone's asking an arm and a leg for their
streaming rights since there's multiple bidders with big budgets involved now.

Netflix will have everything Disney puts out for the next few years; Amazon
won't. Amazon will have all of HBO's back catalog for a while; Netflix won't.
CBS All Access will have the new Star Trek TV series, nobody else will. Etc
etc. That's the short-term future, and it's already locked up in contracts.

~~~
jordache
apparently netflix's offerings is not strong enough for ppl to stay on or
attract new customers at an ever increasing pace.

My experience is obviously not anecdotal

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abtinf
Based on my understanding of Amazon's strategy, this is bad news and it raises
a lot of questions. The most charitable explanation is that they planned their
spending poorly and were not able to match profits - an error which may be a
fire-able offence since it could costs hundreds of millions of dollars.

Have they run out of ideas to invest in? Why are they suddenly changing
strategy and forcing their investors to eat massive taxes on retained
earnings?

Alternatively, are they saving up for some massive investment in the second
half of the year?

~~~
iliveinseattle
I've worked at Amazon. Let me tell you, this is all part of the strategy. At
an all hands sometime ago bezos took questions from employees regarding the
worry around profitability. He basically said Amazon has to lose a lot of
money to reach a massive scale and only then will they become profitable.
However every once in a while they'll show a profit to check in with reality
and Wall Street.

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arzt
Isn't the war between AWS, Google, and Azure etc just a race to the bottom?
Won't these businesses just be complete commodities in the near future?

~~~
adventured
That would have been true if AWS had remained a simplistic hardware-focused
server renting type business.

It's a software services business. Those rarely become commodities as a basic
server business might. And once you have scale, your ability to sell your
customers on an endless variety of new services becomes the real value, and
that prevents the classic race to the bottom and it boosts customer lock-in
dramatically.

AWS, Azure, Google are not primarily competing on compute / ram / bandwidth
cost any longer, that's increasingly a meaningless sideshow (which is why AWS
is no longer aggressively price cutting / matching). They're competing on what
software services they offer, how easy they are to use and scale, etc.

~~~
lostcolony
This. There are other comments on this thread griping about the cost of
bandwidth, and comparing it to competitors for EC2 (Linode and the like)...and
that misses the point. If that's all you want, yeah, there are probably
cheaper alternatives that might do. But for a one stop shop that offers the
best selection of services from which to compose software solutions, mature
and tested, with an aggressive roadmap for adding more...you're left with
those three. And of them, AWS leads.

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hammock
Amazon suppressed/hid profits for so long.. not hard for them to show strong
quarterly earnings. It was accounting then and it's accounting now.

~~~
carc
I've never heard someone saying that a company reinvesting profits into itself
as "suppressing/hiding" profits. I guess all Warren Buffet companies are also
suppressing an hiding profits. Are you calling those companies out too?

~~~
hammock
All I'm saying is "monster profit" doesnt mean the company is doing any better
than it was before. It's generating the same cash, they just aren't spending
it the same way

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crucifiction
Except revenue continues to increase 20-30% yoy

