Shock. Surprise. Wonderment. Those words pretty fairly sum up the reaction to Amazon releasing its second quarterly earnings report in a row that showed a clear profit. (I mentioned the first one back in July.) The biggest reason behind it is the Amazon Web Services division, which earned almost as much as its North American e-commerce business ($521 million versus $528 million) but had a considerably greater profit margin (25% as opposed to 3%).
Amazon is a weird company from the perspective of investors. They frequently don’t seem to know what to make of it—it’s gone on for over twenty years without ever turning a significant profit, which is usually a sign that a business is barely hanging on by its fingernails and about to go under, but it’s hard to imagine that description applying to Amazon. Even now, it’s still not uncommon to see articles on investor-advice sites pop up advising people that they should short Amazon because sooner or later they’ll be right. But meanwhile, an article on investor-advice site Seeking Alpha from an investor who has been “long in Amazon.com ever since 1998” points out that reinvesting in growth is actually a clever idea, because it lets the company get bigger while avoiding those pesky taxes on profits.
It’s easy to imagine that reporting a profit two quarters in a row constitutes Jeff Bezos symbolically sticking his tongue out at detractors, proving that Amazon can easily turn a profit if it wants to. Its star isn’t even tied exclusively to books and retail—that’s just the part everybody notices. Meanwhile, Amazon Web Services has been chugging away behind the scenes, gobbling up a bigger and bigger portion of the web and earning more and more money for Amazon with less capital outlay required. The list of Amazon’s biggest AWS customers reads like a who’s-who of popular businesses on the Internet right now, including some of its own services’ competitors: Netflix, Expedia, Yelp, Samsung, AirBNB, and so on.
Will Amazon keep turning profits now that it’s shown it can? More to the point, does it really matter whether it does or not? These will be interesting things to watch in the future. But profits or not, Amazon seems unlikely to go bankrupt any time soon—which is undoubtedly good news for all the people who buy e-books from them.