Amazon grace: How internet giant crushed Q1 in 5 ways

27 Apr 2018

Amazon deliveries. Image: Julie Clopper/Shutterstock

Jeff Bezos’ cloud and e-commerce machine is still raining cash.

E-commerce and cloud giant Amazon crushed earnings for Q1 2018 with revenues of $51bn for the quarter.

This yielded the company a profit of $1.6bn, which is up $724m year on year.

‘AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down’

The strong results saw Amazon stock surge 7pc in overnight trading.

So, what is Amazon doing right?

1. AWS was a visionary move several years ago

Back when the cloud was just a bit of moisture on the lens of most CIOs’ crystal balls, and while most people’s eyes were glazing over as forecast after forecast promised that cloud would be the future, Amazon was already making hay with Amazon Web Services (AWS).

AWS, which is pretty much used by a slew of online giants to run infrastructure (such as Netflix) as well as legions of feisty start-ups, contributed $5.4bn to Amazon’s revenues. It also accounted for 73pc of Amazon’s operating income, meaning that for every dollar in operating profit, 73c comes from AWS.

According to Amazon’s Q1 results, AWS landed several high-profile enterprise customers during the quarter, including: hosting giant GoDaddy; LG Electronics, which has chosen AWS for its internet of things (IoT) infrastructure; and Pfizer, which has selected Amazon Redshift as the enterprise standard for its mission-critical analytical applications.

“AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” said Amazon CEO and founder Jeff Bezos.

“As a result, the AWS services are by far the most evolved and most functionality-rich. AWS lets developers do more and be nimbler, and it continues to get even better every day. That’s why you’re seeing this remarkable acceleration in AWS growth now, for two quarters in a row. A huge thank you to all our AWS customers, and you can be sure we’ll keep working hard for you.”

2. AWS is all over machine learning

AI and machine learning (ML) are areas where Amazon also has an edge, and the company revealed that tens of thousands of customers are using AWS ML services, with active users up 250pc in the last year.

These include Dow Jones, Expedia, Grammarly, Lionbridge, NFL, Politico, Tinder and VMware.

3. Prime rib, anyone?

Last week, Bezos revealed that the Prime shipping and entertainment service had 100m customers worldwide, with more than 100m products available for two-day shipping.

This is actually putting pressure on Amazon’s logistics networks. To cope, the e-commerce giant is increasing the price of subscriptions from $99 to $119 per year.

In the last year or so, Amazon has offered a boost with a new Prime Now service that delivers groceries and other goods within two hours, and includes Whole Foods deliveries in 10 US metropolitan areas.

4. Alexa is growing up scarily fast

Amazon’s voice-based AI Alexa is in stealth mode and, as it becomes a part of the infrastructure of homes and offices worldwide, the sophistication of its platform is also developing. Alexa now features more than 40,000 ‘skills’ (Amazon speak for apps) from players such as Lonely Planet and even Pokémon.

Now, Amazon is introducing a new Alexa Calling and Messaging service on Fire, iOS and Android tablets; Alexa Announcements to proclaim announcements to Echo devices in the home; and Alexa Voice Service is now available on a slew of IoT platforms. These include new car models from Toyota, such as Avalon, Rav4 and Corolla, and the Switch connected light switch from Ecobee.

5. Amazon has doubled down on the US first

Sales in the US accounted for $30.7bn of Amazon’s revenues, up 46pc year on year. International sales were also up by 34pc to $14.8bn. However, international sales contributed an operating loss of $622m.

This means Amazon is spending far more than it makes in overseas markets – a huge contrast to the US.

However, Amazon is known for making calculated bets and historically has been unafraid to absorb losses in order to deliver a longer-term strategic objective.

If Q1 proves anything, Amazon has the cash to keep playing this game. The question is, will Amazon double down on Europe and Asia in the same way it has with Prime and Whole Foods in the US? Will Amazon buy a European or Asian retailer with the same metro reach as Whole Foods? Watch this space.

Amazon deliveries. Image: Julie Clopper/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years