Amazon’s overall earnings disappoint, but its server business is looking just fine

Amazon's AWS data center
Amazon's AWS data center Amazon Web Services
Things aren’t looking up at the company that Jeff Bezos built. During the Internet retailer’s earnings call on Thursday, the company reported disappointing profits of $1 per share in the fourth quarter of last year — far below Wall Street’s projection of $1.56. Amazon missed on revenue too, generating $35.75 billion instead of the $35.93 billion investors were expecting.

At fault were upward-creeping capital investments. Operating costs accounted for 3.1 percent of Amazon’s net sales, a climb from the third quarter 2015’s 1.6 percent. Q4 expenses totaled $34.64 billion overall, up from $28.74 billion a year ago.

The news isn’t all bad, though. Revenue was up 22 percent from the same period the year prior, when Amazon recorded net earnings of $29.3 million. And net revenue in North America climbed 24 percent to $21.5 billion while international earnings hit $11.84 billion on a 12 percent upswing. News on Amazon’s Web Services front, which comprises its cloud computing and Web hosting business, was particularly encouraging: The division notched revenue of $2.41 billion in Q4, up an impressive 69 percent year over year. It slightly beat Wall Street expectations of $2.38 billion.

Amazon’s Prime offering remains a veritable juggernaut. Memberships grew 51 in 2015, only a few percentage points under 2014’s expansion of 51 percent, and paid memberships in the U.S. grew 47 percent. The number of Prime subscribers now totals 54 million members in the United States, according to market research firm Consumer Intelligence Research Partners (CIRP).

Amazon will no doubt look to Prime for future growth — members on average spend about $1,100 on Amazon compared to $600 for nonmembers, reports CIRP. To that end, the company’s likely to maintain its longtime strategy of incentivizing sign-ups with a never-ending barrage of added benefits. Prime still gets you free two-day shipping and discounted one-day shipping, of course, but the company launched food delivery for Chicago-based Prime members earlier this week. Other perks include grocery delivery in eligible metros, a 20 percent discount on video games, unlimited photo storage, free monthly ebooks, and access to a growing library of original television, music, and movies.

Perhaps anticipating a leveling off in Prime growth, though, Amazon’s exploring new markets. Its had recent success in the hardware business after a few missteps: the company’s Fire TV set-top devices bested Chromecast, Roku, and the third-generation Apple TV in the first quarter of 2015 according to Strategy Analytics, and the company’s Alexa voice assistant-driven Echo speaker was the top-selling $100+ item on Amazon during Black Friday last year.

On the services side, Amazon’s reportedly hammering out the details of a $10 a month music subscription service — discounted for owners of an Echo speaker — to compete with Spotify, Apple Music, and others.

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