Category: Oracle

Amazon reported earnings per share of 52 cents on Thursday, missing the earnings target of 78 eps predicted by analysts by a margin that, in combination with other data points from the earnings report, subsequently sent the stock plummeting by 5% in trading on Friday. For the quarter ending September 30, 2016, the company reported revenue of $32.71 billion that slightly exceeded Wall Street estimates of $32.69 billion. Meanwhile, Amazon’s revenue guidance for the fourth quarter between $42 billion and $45.5 billion leaned toward the lower side of the spectrum of Wall Street’s expectation of $44.58 billion. To make matters even more worrisome for investors, Amazon projected operating income of between zero and $1.25 billion for the fourth quarter, whereas Wall Street had projected $1.62 billion. On a positive note, the company’s cloud services business unit, Amazon Web Services, claimed revenue of $3.23 billion, an increase of 55% in comparison to the $2.08 billion from the third quarter of last year that surpassed Wall Street’s expectation of $3.17 billion. Amazon explained its less than stellar earnings report by noting its heavy investments in original video content for Amazon Prime as well as fulfillment centers. Nevertheless, Amazon’s earnings per share miss and third quarter results more generally raised eyebrows in both the technology and investor community after a year of impressive growth and the preservation of its lead in the cloud computing space despite intensified competition. Axcient CEO Justin Moore remarked on Amazon’s recent earnings miss as follows:

Despite the Q3 EPS miss, over the longer-term, Amazon will continue to be a dominant force in both e-commerce and enterprise infrastructure – an incredible feat given that the customer sets are on the opposite ends of the spectrum. Amazon has been very clear that it will continue to focus on growth and not profitability. Investors have signed up for this approach for years so the blip in the stock will be tempered. Bezos has Amazon ‘primed’ for a dominant push to 2020 – and beyond. AWS and Prime continue to be Amazon’s primary growth and revenue drivers as the Seattle company broadens its lead in online commerce and cloud-computing services. The only real question for Amazon comes down to two factors: 1) its ability to appease investors appetite for ongoing record growth and 2) can it continue to maintain its lead over Microsoft, Google and Oracle who are equally committed to winning the cloud and have the benefit of being second mover which can be a benefit in these situation as infrastructure ages out and size and scale become inhibitors to innovation and performance. Expect to see all leverage M&A to acquire their way to technical leadership and hold an edge over the competition. That said, while there is plenty of startup talent to be bought at a premium, I don’t see Amazon losing this race anytime soon.

Here, Moore opines that Amazon’s ability to manage investor expectations and shake off the “second mover” advantage had by competitors such as Microsoft, Google and Oracle will determine whether it can continue the dominance in “e-commerce and enterprise infrastructure” that it has delivered, to date. Moore also notes that second movers stand to benefit from their ability to outpace the “size and scale” of their competitors with enhanced agility and innovation. Herein lies the stakes of Bezos’s gamble on innovation and investment in Amazon’s infrastructure: if Amazon can, indeed, afford to innovate on the rapidly expanding scale of its business and cloud operations with the agility of its competitors by re-investing resources acquired through its meteoric growth to date, Amazon stands poised to radically reconfigure the technology landscape over the next ten years in ways analogous to the disruption that Amazon Web Services brought to the cloud computing landscape. But in the event that the size and complexity of Amazon’s infrastructure mitigates against its ability to continue to deliver innovation, the chances of competitors such as Oracle and Google catching up to it, at least on the cloud services front, increase dramatically. According to Amazon’s CFO, Brian Olsavsky, Amazon built 18 new fulfillment centers in the third quarter while investing heavily in video content to enable Amazon Prime’s video services offerings to compete with Netflix. With respect to Amazon Web Services, however, one obvious question investors may have following last week’s earnings report concerns how Amazon intends to invest in AWS in response to Google’s rebranding of its cloud-based products and services coupled with Google’s aggressive emphasis on professional services for the enterprise.