Amazon Web Services surpasses North American e-commerce profits, drives Amazon's Q1

AWS operating income was slightly less than in the fourth quarter of 2015 but still drove upside to Amazon's first quarter.

Amazon handily topped estimates for the first quarter as Amazon Web Services was more profitable than the North American e-commerce business, the company reported Thursday in its earnings report.

Amazon Web Services came in with an operating income of $604 million -- stronger than Q4 2015 operating income of $580 million, and stronger than the North American e-commerce business' $588 million.

"We're very pleased with the quarter," Amazon CFO Brian Olsavsky said on Thursday's earnings call specifically about AWS, calling it "now a $10 billion business."

He added, "We're pleased, but it is very early to start drawing too many conclusions on the long-term margins on this business, they'll be bumpy over time." At any point in time, he said, they'll reflect a balance of investing global expansions and price reductions.

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Overall, Amazon posted a net income of $513 million in the first quarter, or $1.07 per share, compared with net loss of $57 million, or $0.12 per share, in first quarter of 2015. Net sales increased 28 percent to $29.1 billion in the first quarter.

Earlier this month, Amazon acknowledged the growing size and significance of AWS by giving Andy Jassy, the head of AWS, the title of CEO. The business' exponential growth was evident from its Q4 2015 operating income of $687 million (or $580 million, including stock-based comp and other), which was more than it made during the whole of 2014. AWS is on track to soon reach annual sales of $10 billion, Amazon CEO Jeff Bezos said in his annual shareholder letter earlier this month. Just two years ago, it was a $5 billion business.

Amazon on Thursday touted the growth of its devices and Prime services. Customers purchased more than twice as many Fire tablets in the first quarter than they did in first quarter of 2015. Meanwhile, Amazon is having trouble keeping up with demand of its Echo devices. Prime subscriptions continue to grow, and even in the more mature U.S. market increased by 47 percent in 2015. Its new monthly subscription option should expand that customer base, while Amazon continues to invest in new Prime content.

For the second quarter of 2016, Amazon said it expects net sales to come in between $28 billion and $30.5 billion, or to grow between 21 percent and 32 percent compared with second quarter 2015. The online retail giant expects an operating income between $375 million and $975 million, compared with $464 million in second quarter 2015.

More on Amazon, by the numbers:

  • Total active customer accounts for the quarter: Over 310 million
  • New AWS features and services in 1Q2016: 214
  • Prime Now: Available in 30 metro areas

Correction: An earlier version of this article compared Amazon's operating income including stock-based compensation and other operating expenses of $604 million with Amazon's Q4 2015 operating income not including stock-based compensation and other operating expenses. The article has been amended to compare both quarters' income with stock-based comp.