A business once derided as a risky distraction suddenly helped add a stunning $40 billion to Amazon.com’s market value today.
And in a stark sign of how e-commerce has upended the retail business, Amazon is now worth more than Wal-Mart Stores. No doubt Sam Walton is twitching in his grave.
In its second quarterreported today, Amazon said its Amazon Web Services cloud computing business saw revenues jump 81%, to $1.8 billion. But even that wasn’t the biggest surprise for investors, who bid up Amazon’s shares by about 17% in extended trading after a 1.5% decline in today’s regular trading.
Even though cloud services constitute less than 8% of overall sales, which include product sales and other service revenues such as fulfillment for other retailers, AWS earned $391 million in operating profit. That’s well over half the $684 million operating profit from Amazon’s worldwide product sales of $21.4 billion–nearly five times the revenue level of AWS.
In other words, the onetime distraction’s operating margin is north of four times that of Amazon’s original business. At this rate, investors may soon need to rethink what Amazon’s core business actually is.
It’s yet another sign that CEO Jeff Bezos’ risky bet has paid off bigtime. It took many years, but it’s clear that Bezos saw something his critics didn’t. “What we’ve historically seen is that the seeds we plant can take anywhere from three, five, seven years,” he told me way back in late 2006.“We think it’s going to be a very meaningful business for us one day.”
Then a funny thing happened–Cyber Monday, created by the National Retail Foundation’s Shop.org online unit, became a self-fulfilling prophecy as retailers jumped on the term and began offering special sales that day after the Thanksgiving holiday. By the following year, it had turned into a real phenomenon, at least for many retailers, and last year it became the heaviest shopping day ever to date. It might even happen again this year.
But now, even as many retailers have made Cyber Monday sales a stock part of their holiday strategy, I’m betting its days are numbered. Why?
* Early sales. Smart retailers noticed that before Cyber Monday, at least (and perhaps still), the period leading up to the big day actually were even more active shopping days. And in their never-ending attempt to get a step ahead of rivals, many retailers ran not just pre-Cyber Monday sales, but pre-Black Friday sales as early as the evening before Thanksgiving. Apparently they worked. They almost certainly will cannibalize Cyber Monday sales. …