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Amazon crushes earnings expectations on strength of Web Services

Daniel Roberts
Senior Writer

Amazon's first-quarter earnings on Thursday destroyed expectations across the board. It's a far sunnier report than one quarter ago, when the company missed on revenue. Amazon (AMZN) stock surged more than 11% in after-hours trading thanks to the earnings, and was still surging at the time of writing. This was Amazon's fourth-straight profitable quarter.

Revenue came in at $29.1 billion, up 28% from last year and beating expectations of $27.99 billion; earnings per share (EPS) came in at $1.07, way above expectations of 58 cents. And revenue for Amazon Web Services (AWS) came to $2.57 billion, edging out estimates of $2.53 billion.

It is the latter figure that's most compelling. Amazon is crushing it in cloud-computing. AWS provides storage services to General Electric (GE), Netflix (NFLX), Instagram (FB) and Spotify, to name just a few of the major players that pay to use it. AWS revenue is up 64% from the first quarter of last year, and its operating income is up 170%. That is staggering.

AWS is also a profit machine: It accounted for 56% of the company's profit this quarter and is the most profitable business at Amazon. As analyst Jan Dawson pointed out on Twitter, AWS generated more operating income in the quarter than Amazon's entire U.S. e-commerce business, with less than one eighth the revenue.

In a story last year, The Atlantic called AWS "the piece of infrastructure that has enabled the current tech boom." It looked like hyperbole, but less so now. It has a murderer's row of clients, and those clients are willing to pay up to use it.

There were other highlights in Amazon's earnings: International sales hit $9.57 billion for the quarter, a rise of 23% from $7.75 billion one year ago, showing huge growth outside the U.S. (That being said, its international division is still not profitable.) And the company had some bragging to do about its own devices: On its earnings call, Amazon said its own devices are the best-selling hardware items on Amazon. It sold twice as many Kindle Fire tablets as it did in the first quarter of last year, and CEO Jeff Bezos pointed to Fire sales as a big contributor to overall sales growth, though Amazon does not break out earnings for its hardware.

In its shareholder letter, Amazon mentions that Amazon Studios, "acquired the rights to several high-profile films" and names the seven films, which include one directed by Woody Allen. After each movie finishes its run in theatres, each "will become available exclusively to Prime members through Prime Video." This simple statement of fact is a reminder that Amazon is eager to compete with Netflix, HBO and Hulu in the original-content streaming game.

Finally, on a personal wealth note, the earnings were especially nice for Bezos, whose net worth jumped by more than $6 billion.

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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.

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