(FILES) In this file photo taken on April 28, 2018 shows the logo of Amazon displayed on a screen and reflected on a tablet in Paris. Amazon on July 26, 2018 reported profits in the past quarter jumped 12-fold to $2.5 billion as the online giant saw gains across its range of businesses. Amazon has grown into one of the world's biggest companies on its global e-commerce operations along with cloud computing, artificial intelligence, video, groceries and other operations. / AFP PHOTO / Lionel BONAVENTURELIONEL BONAVENTURE/AFP/Getty Images

Amazon blew past Wall Street earnings forecasts as its diversification into higher-margin cloud computing and the dominance of its online retail business produced the first $2bn quarterly profit in its history.

The second-quarter results were a bright spot in gloomy week for the technology sector, coming a day after Facebook stunned investors with a prediction of slowing growth, sending its shares down almost 20 per cent and wiping off more than $120bn from its market capitalisation.

Amazon, which only crossed the $1bn mark for quarterly profit at the end of last year, reported $2.5bn in net income in the quarter ending in June. Earnings per share surged to $5.07, up from 40 cents in the same quarter a year ago and more than double the Wall Street estimate of $2.51, according to S&P Global Market Intelligence. 

Revenue rose 39 per cent to $52.9bn, which was less than analysts’ consensus estimates of $53.4bn but within the company’s guidance range of $51bn to $54bn. 

The shortfall reflected weaker than expected growth in the company’s international operations, where it suffered continued losses.

Amazon shares, which had dropped 3 per cent on Thursday amid the downturn in tech stocks led by Facebook, rose 1.5 per cent in Friday morning trading to $1,831.56.

The company’s operating margin reached 5.6 per cent in the second quarter, well above the 3.2 per cent that analysts were expecting, buoyed by growth in the Amazon Web Services cloud computing division and improving margins in online retail. Amazon benefited from an increase in sales by third-party vendors on its site.

“A big contributor to the quarter and the last few quarters obviously has been strong growth in our highest profitability business, AWS, and also advertising,” said Brian Olsavsky, chief financial officer. He also noted “greater than expected efficiency” from investments the company made last year in areas such as warehouses, data centres and marketing. 

Daniel Ives, analyst at GBH Insights, said: “The main takeaway is that the Amazon Web Services leverage and the overall profitability picture is accelerating quicker than the Street was expecting.”

Amazon said it anticipated that trend would continue in the third quarter, which included its annual Prime Day sale last week. It said it expected operating income to come in between $1.4bn and $2.4bn, up from $347m in the third quarter of 2017 and ahead of the $1.3bn that analysts forecast. Amazon expects net sales to rise by between 23 and 31 per cent to $54bn to $57.5bn, more conservative than analysts’ consensus forecast of $58bn. 

Amazon Web Services net sales jumped 49 per cent to $6.1bn, shooting past expectations. Its operating profit surged 84 per cent to $1.64bn.

In its North America retail business, Amazon’s largest source of revenue, net sales were up 44 per cent to $32.2bn, in line with Wall Street’s forecast. Operating income more than quadrupled to $1.83bn. Revenue from physical stores, mainly the Whole Foods grocery chain that Amazon acquired last year, reached $4.3bn in the quarter.

International net sales of $14.6bn came in shy of expectations and Amazon said it would invest in markets including India. It has been ramping up international spending in a bid to extend its dominant position in the US around the globe. The company pared its international operating loss to $494m from $724m in the year-ago quarter. 

Amazon has also begun disclosing revenue from advertising, a new line of business with high margins. Its “other revenue” category, consisting mainly of advertising sold on its properties and across the internet, rose 129 per cent to $2.2bn.

Costs rose by a third in the quarter to $49.9bn on investments in the Prime programme, logistics infrastructure and video content. Shipping costs rose 31 per cent to $5.99bn.

The Faangs: Q2 earnings tracker


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