Amazon has its most profitable quarter ever, but growth is slowing

Amazon wants to continue its dominance over e-commerce, but it can only grow so much. In its first quarter earnings posted today, Amazon revealed record-high profit, more than double what investors predicted, and revenue was in line with Wall Street expectations, at $59.7 billion. But the company is again entering a period of high spending that, coupled with its slow revenue growth, may prove an obstacle down the line.

It’s clear Amazon is still an extremely profitable company, as the third most valuable corporation on the planet after Apple and Microsoft. But CEO Jeff Bezos is continuing to invest heavily in artificial intelligence, the smart home, and physical retail, bets that won’t pay off for quite some time. As a result, Amazon is leaning heavily on cloud computing and advertising, and less so on its sprawling e-commerce operation, to maintain its momentum.

At this point, the company is starting to pick up spending on infrastructure again, which takes a toll on its profits. This was the quarter that Amazon acquired Eero for a reported $97 million. At CES this year, Amazon didn’t have large product announcements of its own but instead introduced 13 new Ring products. It’s safe to say Amazon’s future seems to rely on the success of its smart home devices.

As Amazon’s CFO Brian Olsavsky said in last quarter’s earnings call, the company is investing more this year, and spending big compared to last year, all of which means slimmer profits. Amazon Web Services continues to be the biggest contributor to the company’s bottom line, reeling in $7.7 billion in revenue, a 41 percent increase from this time a year ago, and $2.2 billion in profit. The success of AWS continues to be Amazon’s most pivotal asset, as many major tech companies rely on its cloud services to power their organizations. It’s easy for a person to boycott Amazon.com, but harder for a person to avoid all organizations that use AWS.

We also felt Amazon shift gears and change strategies this quarter. The company retired Amazon Dash buttons that were supposed to let you order stuff easily at the push of a button. But the limited interfaces also hid pricing and failed to allow customers to weigh their options. Amazon also doubled down on its physical stores, announcing that it will close all 87 of its pop-up kiosks in the US by April 29th. It also announced bigger discounts at Whole Foods and there were rumors that Amazon would launch its own grocery chain. The company continues to tear pages out of traditional retailers’ books, even as companies like Walmart and Target struggle to compete.

And in what seems like one of the biggest defeats for Amazon this quarter, it lost its New York City headquarters, after protests convinced the company to pull out. Adding to the turmoil, Amazon CEO Jeff Bezos went through a divorce, handing over 25 percent of his stock, worth approximately $35 billion.

Going forward, Amazon is also limiting its already small presence in China, by closing off its Chinese service to third-party sellers, effectively surrendering its e-commerce footing in one of the biggest markets in the world. All of this means that Amazon and Bezos are at a new point where they have to evaluate their plans and retool what works. It’s probably a good thing that Amazon has a hand in so many different pockets then, and that it can rely on devices, physical stores, and AWS to continue bringing home the profits.

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