Amazon’s advertising and cloud units drive huge profitability in Q2

Amazon reported quarterly earnings yesterday. It missed on top-line revenue, which was up 39 percent from the year-ago second quarter, but dramatically beat analysts’ earnings expectations. Revenues were $52.9 billion for the quarter compared with Wall Street expectations of $53.41 billion.

Earnings, however, came in at $5.07 per share, which was more than double what analysts had expected ($2.48 a share). This translates into net income of $2.5 billion.

Among a long list of accomplishments and launches in the quarter, Amazon touted the success of Prime Day as its “biggest global shopping event ever.” Prime Day sales will be reported in third-quarter results. But Amazon pointed out that small and medium-sized businesses sold more than $1.5 billion of products on Prime Day.

The real stars of the quarter were Amazon’s high-margin business units, including Amazon Web Services and its fast-growing ad business. Combined with a slowdown in hiring, these units propelled the growth in net income.

Amazon’s ad revenues (reported as “other”) were roughly $2.2 billion. That was up more than 130 percent year over year and the second consecutive quarter that they exceeded $2 billion.

Amazon CFO Brian T. Olsavsky said, on the earnings call, “Advertising is also starting to make an impact on gross profit. Although advertising is smaller in the International segment than it is in North America, it’s growing at the same rapid clip year over year.”

AWS saw revenues of $6.1 billion, which were up 49 percent or $2 billion from a year ago. The division was also more profitable than a year ago. Investors reacted enthusiastically, sending Amazon’s stock up. Today, its market cap is $907.6 billion, on the way to a probable $1 trillion in the near term.