On Strong Earnings, Amazon And Whole Foods Face Culture Clash


Amazon's stock price soared to more than $1,000 per share in after-market trading on Thursday after the company reported higher-than-expected revenues and offered an optimistic projection for its next quarter, which includes the critical holiday season.

Although AWS has continued to be a massive profit driver, accounting for almost 10% of total revenue in Q3, sales growth for the cloud service actually slowed down for the eighth straight quarter.

As usual, the company's profits were relatively small - $256 million, or 52 cents per share, nearly flat with the third quarter of a year ago as it ploughed money back into the business. Management had guided for third-quarter operating income to be between a loss of $400 million and a gain of $300 million.

While there has been a massive rush to create 3rd party skills for the Amazon Echo, most have either been toy applications of extensions of other services, because until recently there was no way for applications to pay for themselves. This quarter it had revenue $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.

Amazon's adjusted net sales, therefore, handily exceeded management's forecast for third-quarter net sales between $39.25 billion and $41.75 billion.

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Revenue from online stores increased by 22% to over $26.4 billion, which is the fastest growth seen by Amazon in that segment for over one year. The e-commerce and cloud computing giant crushed Wall Street's expectations and its own guidance across the board. In the fourth quarter of 2016, Amazon had $43.7 billion worth of sales, meaning that it expects an increase of 28% to 38%.

Amazon has begun charging for Alexa skills, as the online retailer looks to monetize the apps used by its Echo smart speakers.

"Customers have purchased tens of millions of Alexa-enabled devices..." For the quarter, operating income was down by 40% to $347 million.

Amazon has been on a hiring spree, increasing its staff by 77% in the past year to 541,900 full and part-time workers, part of a rapid buildout of its regional warehouses. The launch of new services like Amazon's unlimited music service in several European countries, and the rollout of Alexa services to India and Japan, have all taken their toll on the cost line.

In its release, Amazon vowed to continue the downward pressure on prices at often-pricey Whole Foods, saying "the two companies together will pursue the vision of making high-quality, natural and organic food affordable to everyone".