Today’s business headlines include the reporting of Amazon’s latest operating results for the March-ending Q1 quarter. The global online provider and Omni-channel disruptor reported a net sales increase of 15 percent to $22.7 billion, but also a net loss of $57 million. There was a $1.3 billion unfavorable impact related to foreign exchange rates throughout the quarter. Operating expenses increased nearly 75 percent, prompting The Wall Street Journal to opine that: “Amazon again spent nearly all the money it took in.”

In essence, Amazon is spending and investing in all forms of projects and today’s predominantly short-term focused investors are growing ever more impatient with the timing of a big reward. Once more, Amazon has forecasted the potential of an operating loss, or small profit gain for its upcoming quarter.

An area that has captured Wall Street’s attention is revelations about the often secretive cloud computing support Amazon Web Services (AWS) business operating unit which was finally revealed. AWS revenues were reported as $1.57 billion in the quarter, up a whopping 49 percent, and at an annual run rate of nearly $5-6 billion for the year. Once more, this has been in a fiercely competitive sector with many global enterprise technology players duking it out for market-share dominance. Once more, operating margins for AWS are tracking at nearly 17 percent compared to nearly 4 percent for retail online fulfillment.  Retail fulfillment continues to have pressures related to distribution center rollouts as well as the net effects of free shipping offered to Amazon Prime customers.

The high AWS product margins categorizes this business as growing faster than Amazon’s online fulfillment business, although considerably smaller overall, but the difference in margins have now captured the interest of Wall Street, and most likely the community of activist investors.

Among online customer fulfillment highlights for the march-ending quarter were:

  • The launching of both Amazon Dash Button, a small button that Amazon Prime customers can place in their home to automatically reorder frequently used products. Supply Chain Matters recently called attention to Procter & Gamble as one key participant in this program, which might have prompted a reaction from Wal-Mart.
  • A complimentary offering, Dash Replenishment Service (DRS) enables connected devices to directly order replenishment supplies. Early participants in DRS include Brother, Brita Quirky and Whirlpool.
  • The launching of Amazon Home Services, a new marketplace for on-demand professional pre-packaged services
  • Amazon’s Prime buying service celebrated its tenth anniversary with tens of millions of members across the globe.
  • The opening by Amazon China of an Amazon International retail store on Tmall, featuring thousands of imported products and an expansion of Amazon Global Store offered in China to over one million items.

A common and troubling theme in today’s U.S. business climate has been activist investors surrounding well-recognized internally focused producers including names such as Apple, DuPont, Procter & Gamble and others.  The HJ Heinz-Kraft Foods acquisition announcement continues to have far reaching implications for other consumer product goods producers and their respective supply chains.

The question now becoming apparent is whether Amazon’s growth track record contrasted to profitability performance opens the door to activist actions as well, particularly when it concerns the potential of AWS.

What’s your view?  Will Wall Street activist investors surround Amazon as-well?

Bob Ferrari

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