Amazon is and continues to solidify its position as the biggest e-commerce company in the world. They posted third quarter results which exceeded analyst expectations. Revenue grew by about a third year on year to $43.7 billion, which includes the $1.3 billion contribution from new acquisition Whole Foods. Not counting the $1.3 billion, revenue grew by 29%.
As revenue grew so did costs as Jeff Bezos, founder and CEO’s decision to deliver flat-profit growth remains. In the 3 months, July to September, Amazon added 160,000 to its workforce bringing the total up to 541,900. Several investments were also made in the period.
As such profits only increased by $4 million compared to third quarter 2016. Jeff Bezos maintains that he will invest every cent back into the company rather than distribute it as dividend.
The biggest growth was seen in Amazon Web Services (AWS), the cloud business which grew by 42% year over year.
Jeff Bezos says this growth is because of the growth in demand for their smart home products which have the AI-powered Alexa at their core.As such AWS now accounts for 11% of group revenues.
The retail business still contributes the bulk of revenues but at much lower profit margins than AWS. The North American retail business operates at break-even i.e. neither making profits nor losses whilst the international operations run at a loss.
As such, AWS with its 26% profit margins is quite important to both the short and long term future of Amazon, especially the short term.
The investments being made by Amazon are to position the company to take the most advantage of the move to online shopping. Currently online shopping accounts for 10% of retail sales and that figure is increasing albeit slowly.
Moves like the acquisition of Whole Foods ultimately led to Amazon acquiring a customer. The move means Amazon has a guaranteed customer for its Grocery Services and quite a large customer at that. These kinds of moves will grow the retail business in the long term which Bezos is looking at.
Retail growth grew mainly because of Prime Day, which according to the company’s CFO was received very well in the international market especially.
As mentioned above, costs grew with the revenues and so profits were stagnant.
The low profit growth was expected by investors as they know where Bezos stands and so share prices rallied on breaking of the Q3 results. In a quarter where the company was stocking up its warehouses for the holiday period, even the CFO had warned investors that it would be a lower income quarter. So the growth sent shares soaring.
So high did the share price rise that Jeff Bezos overtook Bill Gates as the richest man in the world. At one point his stake crossed the $100 billion mark but is now around $99.6 billion compared to Gates’ $91.3 billion.
In the year Jeff Bezos added an astounding $34.2 billion to his personal net worth. This should be contrasted to Zimbabwe’s GDP which stood at just over $16 billion in 2016.
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