Amazon finally figures out how to make money

Amazon - famed for its massive turnover and slim margins - lets investors take a peak under the hood of Amazon Web Services; and they like what they see

It seems Amazon has at last discovered a business that makes money.

The Seattle-based retail and cloud giant lifted the fiscal lid on Amazon Web Services (AWS) for the first time and investors liked what they saw. The division pulled in $1.57bn in revenue for Q1, 7% of the $22.72bn total for the company.

But that was not the statistic that made shareholders giddy. It was the fact that Amazon Web Services posted $265m of operating income, translating to a healthy operating margin on 16.9%.

AWS has been around since 2006 but this is the first time the company has segmented the figures. Amazon’s cloak and dagger handling of the situation led many analysts to believe that the division was yet another sinkhole in the business. Earlier this month, analysts at both Goldman Sachs and Citigroup predicated that AWS was either operating at breakeven or incurring losses.

“Amazon Web Services is a $5 billion business and still growing fast — in fact it’s accelerating,” boasted Jeff Bezos, founder and CEO of Amazon.com. “Born a decade ago, AWS is a good example of how we approach ideas and risk-taking at Amazon. We strive to focus relentlessly on the customer, innovate rapidly, and drive operational excellence. “

“We manage by two seemingly contradictory traits: impatience to deliver faster and a willingness to think long term. We are so grateful to our AWS customers and remain dedicated to inventing on their behalf.”

The rest of the business, however, maintained the time honoured tradition of huge turnover, aggressive investment and dangerously small margins. The North America and international retail operations, for example, accounted for 92% of total revenue. And yet the $22.72bn of sales only generated $440m in operating income.

This slim margins meant that after stock-compensation and other such factors were accounted for Amazon reported a $57m net loss for the quarter. This didn’t deter investors though, as shares jumped 6.4% in after-hours trading.

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