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Amazon misses Q2 earnings estimates but revenue climbs thanks to AWS

Amazon Web Services grew at a healthy 42 percent for the quarter, but Amazon's operating expenses grew as well.


Amazon published its second quarter financial results on Thursday, largely missing earnings expectations even as it posted healthy revenue gains.

The Seattle-based tech giant posted net income of $197 million in the second quarter, or 40 cents per diluted share, on revenue of $38 billion.

A year prior, the company reported earnings of $1.78 per share on revenue of $30.4 billion.

Wall Street was looking for earnings of $1.42 per share on revenue of $37.2 billion

"Our teams remain heads-down and focused on customers," said CEO Jeff Bezos in a statement.

Operating expenses climbed from $29.12 billion a year ago to $37.33 billion in Q2.

In his statement, Bezos stressed the highlights of the quarter, such as the launch of Echo Show (an Echo smart speaker equipped with a video screen), the launch of four new Fire tablets, the expansion of Amazon Fresh to Germany, and the expansion of Prime Now into Singapore.

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Amazon Web Services represented the largest chunk of Amazon's earnings, posting net sales $4.1 billion, growing 42 percent year over year, with an operating income of $916 million.

AWS' run rate increased from $14 billion last quarter to $16 billion, with its largest sequential and year-over-year dollar rise in revenue.

"We are seeing great customer adoption," said Amazon CFO Brian Olsavsky on a conference call. Customers are joining AWS, he said, largely because of its "functionality and pace of innovation."

While AWS remains the dominant player in the cloud market, competition from Microsoft and Google continues to grow. Just last week, Microsoft reported that in its fourth quarter, its Azure cloud business nearly doubled year over year.

In its release Thursday, Amazon highlighted some recent AWS wins: The firm Ancestry, collaboration company Hightail, and California Polytechnic State University are going all-in with the cloud vendor. Other enterprise customers that have recently chosen AWS to run significant production workloads include Discovery Communications, Morningstar, BP, and Zillow Group.

North American net sales came to $22.4 billion, growing 27 percent year over year, with operating income of $436 million.

International net sales were $11.5 billion, with operating losses of $724 million.

The second quarter report did not include any information pertaining to Amazon's $13.7 billion acquisition of Whole Foods, since the deal has yet to close. However, Olsavsky said Thursday that Amazon is excited to acquire a "customer centric" business like Whole Foods. Amazon is "experimenting with a number of formats" in food services, including physical pick-up points for orders, as well as direct delivery. There's currently "no one solution," he said.

For Q3, Amazon expects revenues between $39.25 billion and $41.75 billion.