Amazon's Profitable Track Record
Recently Amazon has treated their investors well, turning out large profits and great ROI. But in this latest quarter, Amazon's profits fell short of what Wall Street analysts had predicted. When the company’s financials came out for the quarter the company's stock value fell 5%.
A Strategy Of Revenue Reinvestment
This drop in ROI caused many investors to back off, even though these events were predicted by Amazon earlier in the year. In early 2016 Amazon announced that shareholders would see a drop in profits the second half of the year as they reinvest in new warehouses and original movie and tv content for Amazon Prime. Investors and analysts shrugged off this announcement. Last year, Amazon had made a similar announcement saying that revenue reinvestment in quarters three and four would cause profits to drop. But to investors delight when quarters three and four of 2015 actually rolled around, returns were much better than Amazon had warned. It turned out this year Amazon was not bluffing. Amazon stock fell to 52 cents a share, 33% less than the 78 cents a share predicted by analysts.
The Giant Is Growing
As the colossus that is Amazon competes and grows in multiple industries, the reinvestment into its lines of business increases as well. On all fronts, Amazon is growing. Amazon has opened 18 fulfillment centers across the country this year and it's rumored that they're purchasing factories for Amazon product production. Also, Amazon is pushing to create new original content for Amazon Prime Streaming services to compete with industry giants like Netflix and Hulu. Finally, Amazon's new line of cloud computing solutions Amazon Web Services (AWS) has turned into the company's most profitable line growing 55% in the last year with an operating income of $861 million.
With so many lines of business growing exponentially, Amazon will likely find itself heavily reinvesting in itself over the next couple of years. While Amazon's profit reinvestment may worry investors, the company confidently marches forward towards limitless growth and scale.
Sources: Wingfield, Nick. "Amazon Comes Up Short on Profits, Focusing on Warehouses and Movies." New York Times. New York Times, 27 Oct. 2016. Web.