Amazon doubles profit, sees net sales surge in first quarter of 2018
There appears to be no stopping the Amazon behemoth. In a quarterly earnings report published on Thursday that absolutely smashed analyst expectations, the world’s largest e-commerce company and the second-most valuable company in the world revealed that its profits more than doubled on a year-on-year basis, growing to $1.6 billion in Q1 2018 from $724 million in Q1 2017.
The company also revealed that its net sales surged to $51 billion in the first quarter, a 43 percent jump year-on-year. Even after excluding $1.6 billion delivered because of favourable changes in forex rates year-over-year, net sales still surged 39 percent, making this quarter one of Amazon’s biggest yet.
A huge chunk of Amazon’s profits came from Amazon Web Service (AWS), the subsidiary that provides on-demand cloud computing platforms to individuals, companies, and governments on a paid subscription basis. AWS hosts platforms from Netflix and Airbnb to the CIA and made a profit of $1.4 billion in Q1 2018 on sales of $5.44 billion. In a press release detailing the quarter’s performance, Amazon Founder and CEO Jeff Bezos said, “AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down...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.”
This is the second consecutive quarter that Amazon has posted over $1 billion in profit, after crossing the threshold for the first time in its history in Q4 2017. Analysts widely expected Amazon’s profits to shrink as compared to last year, after a year of heavy expenditure on various deals including the acquisition of US grocery chain Whole Foods as well as massive expansion internationally. However, AWS and a surging advertising division helped the company beat even the most optimistic predictions. Third-party sellers paying to promote and advertise their products on Amazon was a huge gainer in the first quarter, with category sales growing 139 percent to $2.03 billion.
Tom Forte, an analyst with management services company D.A. Davidson, told Reuters, “Advertising is an important and very profitable bucket of revenue for Amazon and is also growing at a fast rate...They are just getting started here.”
The positive earnings report also pushed Amazon’s stock up by 7 percent in after-hours trading, adding an extra $8 billion to Jeff Bezos’ net worth, according to Reuters. In its report, the company also hinted that it expects its above-average performance to continue, estimating an operating income of $1.1-1.9 billion in Q2 2018.
Amazon also announced that it was hiking the price of Amazon Prime, its paid subscription service, in the United States by $20, increasing it from $99 to $119 per year, starting next month. In a letter to shareholders last week, Jeff Bezos revealed that the Prime service had reached 100 million subscribers worldwide, and the price hike is expected to add a significant amount to Amazon’s subscription revenue, which already rose 60 percent in Q1 2018 to $3.1 billion.