Amazon: First Look And AWS Thoughts –, Inc. (NASDAQ:AMZN)

Amazon (NASDAQ:AMZN) reported its 2Q17 results after the closing bell on Thursday. Revenues of $38.0 billion did not disappoint, registering a pick-up in YOY growth compared to the past couple of quarters and beating consensus by $820 million. Sales guidance for the upcoming quarter was also solid, placing current expectations close to the low end of the range.

(Credit: Search Engine Land)

The big sore thumb in the quarter seems to have been Amazon’s opex. Although gross margin of 38.2% was 130 bps better than year-ago levels, operating costs of $13.9 billion jumped by a whopping 40%, with a notable increase in technology and content (+43%) and marketing (+44%). It looks like the lower op margin levels will persist through next quarter at least, as op loss guidance of -$50 million at the mid-point of the range is nowhere nearly enough to support the Street’s expectation of $1.09 in EPS.

Zeroing in on AWS

Yesterday, I published an article discussing how AWS (Amazon Web Services) played a key role in the company’s bullish thesis (more than half of Amazon’s segment op profits ex-SBC in 2016, but only 10% of segment revenues). In my view, it is crucial that Amazon’s cloud business continues to post growth rates near the 40% mark in the short term and at least 20% by 2022.

This quarter, AWS’s revenues were up a solid +42% to $4.1 billion. This number is not far off from last quarter’s growth rate (it is, in fact, the smallest sequential growth deceleration since 3Q15) and right around where I expected it to have landed in 2Q17.

The earnings call is likely to provide further color into the performance of the business. But it appears that Microsoft’s (NASDAQ:MSFT) reported strength in Azure this quarter, better than we have seen since the September 2016 quarter, might have been reflective of a broader-based pick-up in IaaS and PaaS that spilled into the market leader’s performance this quarter.

(Source: Amazon’s press release)

On the op margin side, AWS logged 22.3%…

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