Amazon.com, Inc. (Nasdaq: AMZN) reported second-quarter earnings on Thursday afternoon, beating on revenue but missing earnings expectations. AMZN stock fell more than 2 percent in after-hours trading.
Going into the report, Amazon stock was up 39 percent year-to-date and 340 percent over the last five years.
Amazon earnings by the numbers. The Seattle-based e-commerce giant reported Q2 earnings per share of 40 cents, down 77.5 percent from the same quarter a year ago, on revenue of $38 billion, an increase of 25 percent.
Analysts were expecting EPS of $1.42 on revenue of $37.18 billion, so the bottom-line number was really disappointing from a Wall Street perspective.
But investors know that Amazon's earnings can be rocky and unpredictable, as the company likes to experiment in businesses that can lose money for years and that later become licenses to print money. And zooming out, there were some bright spots to Amazon's Q2 report.
"While there will be a lot of focus on Amazon's big EPS miss today, at Merkle, we're particularly interested in the growth of Amazon's ad business, which has been estimated to generate over $2 billion in revenue a year," says Mark Ballard, vice president of research at Merkle. The online ad business also tends to have a much higher margin than retail.
"This quarter, Amazon's other revenues, which are believed to include ads like Sponsored Products, grew 51 percent compared to a year earlier," Ballard says, highlighting an exciting growth area in the massive company.
AWS made up more than 100 percent of the company's operating income in the second quarter: Operating profits at AWS were $1.8 billion, while the wider company's operating profits were just $1.63 billion. In short, AWS is the profit engine that allows Amazon to run low-margin businesses and experiment in new industries, all while remaining in the black.
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