business news in context, analysis with attitude

Amazon said yesterday that it had Q2 profit of $2.53 billion, up from $197 million a year earlier. Revenue for the period was $52.89 billion, up 39 percent from the same period a year ago. The company’s operating margin was 5.6 percent, its highest in more than a decade and a big increase from the same period a year ago.

The Wall Street Journal writes that the company’s record profits were “powered by the company’s newer services businesses that are ushering the online retail giant into an era of swelling profitability. Fast-growing areas including the company’s cloud-computing business, advertising offerings and services it provides to sellers on its site helped propel Amazon to its highest profit margin in years …Those businesses have helped offset its traditional retail business, which tends to yield lower margins although still the bulk of its revenue.”

These numbers, the Journal notes, means that Amazon has had “three straight quarters of profits over $1 billion, and extends Amazon’s profitability streak across three years. No longer is Amazon known for suffering losses or producing razor-thin income by plowing every dollar it makes back into investments.”

The Journal also reports that “Amazon reported $4.31 billion in revenue from brick-and-mortar stores,” which include Whole Foods.

And, CNet writes that while Amazon increased the price of a Prime membership in the US by 20 percent - on a rolling basis, as renewals come due - the evidence to this point is that it is not causing any sort of decrease in memberships. CFO Brian Olsavsky says that the renewal rates are “looking really, really good,” and the CNet story notes that “last week's Prime Day sale also brought in a single-day record of new Prime sign-ups. Amazon has more than 100 million paid Prime members worldwide, with its largest market in the US.”
KC's View:
People used to say that Amazon didn’t make money, and so did not have a sustainable business model … even though Amazon did make money, but just reinvested it in the business.

Then people said that, well, Amazon may be making money, but it isn’t making money at retail, which is where it really counts, and so it does not really have a sustainable business model.

Seems to me that at some point the skeptics are going to have to accept the idea that maybe Amazon just has a different business model, and that it is simply attacking problems from a different angle and a disruptive perspective. The thing is, Amazon is making money. Which makes it more dangerous than ever.

This doesn’t mean that the future is assured. There will be obstacles and challenges, especially because no matter what the culture, there may be a point at which maintaining an innovative mindset is going to get harder as the company continues to balloon in size. Keeping that “today is day one” attitude is, to be sure, job one. But is has to get harder with every passing day.

And, of course, there are the political challenges that the company faces, though these could vanish with one election.

One other thing. I got a lot of email from MNB readers after the cost of a Prime membership went up, suggesting that this was going to have a swift and deleterious impact on Amazon.

Guess not.