Amazon's sales - and costs - are going up

Use Amazon Alexa to control your Dish Network box.                  Dish Network

Shares at the e-commerce giant were up over 7% in trading afterhours.

Last quarter, Amazon itself forecast Q3 revenues of $39.25 to $41.75 billion, although its internal estimates are usually pretty conservative. This figure includes $1.4bn from the recently-acquired Whole Foods Market, where Amazon has slashed several prices in an effort to undercut rivals and expand its presence in the physical grocery space. Management had guided for third-quarter operating income to be between a loss of $400 million and a gain of $300 million.

Driving the revenue growth was AWS sales which rose 42 per cent year-on-year to $4.58 billion. By comparison, Amazon's most recent quarter ended on September 30, indicating that Whole Foods' revenues have not changed drastically under Amazon's control.

The e-commerce giant's service sales growth (44%) outpaced its product sales growth (29%), notes Profitero vice president of strategy and insights Keith Anderson. Wall Street had been expecting a down period for Amazon, with analysts polled by Thomson Reuters looking for net income of 3 cents per share.

Impressively, Amazon has managed to increase the pace of growth from its online stores, where sales increased by 22% over the prior year.

The Amazon Web Services or AWS, which handle computing and data for large companies, saw growth in profit margin compared to the quarter before, posting a rise in sales of nearly 42% to end at $4.57 billion, which beat estimates of $4.52 billion. Last quarter, AWS sales surged 42% to $4.1 billion, while operating income in that segment was up 28% $916 million.

Amazon's Alexa-enabled devices remain a hit with customers.

"In the last month alone, we've launched five new Alexa-enabled devices, introduced Alexa in India, announced integration with BMW, surpassed 25,000 skills, integrated Alexa with Sonos speakers, taught Alexa to distinguish between two voices, and more", said Bezos.

"And it's working, customers have purchased tens of millions of Alexa-enabled devices, given Echo devices over 100,000 5-star reviews, and active customers are up more than 5x since the same time a year ago".

Amazon now pays developers out of its own pocket to create the skills, which Echo users are then able to download and install onto their Alexa at no charge. The move is interesting, as I am sure there are not many people with Amazon Echo products who do not also have Prime. Given Amazon's appetite for growth - even when it comes at the expense of near-term profitability - it seemed logical that Amazon might spend a significant sum integrating Whole Foods' operations into its business.

Operating income sank 40% to $347 million, and net income rose to $256 million, far above analysts' expectations.

Amazon is blazing a trail here with Jeopardy! and in a statement said they will notify developers when the tool becomes more broadly available.

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