In a recent earnings report, Amazon.com, Inc. announced that quarterly profit in the second quarter fell 77 percent, its lowest profit in nearly two years.
The online retail giant said it is focusing on where all that money is being spent, namely on expansion of existing operations and the addition of new capacity via its recent $13.7 billion acquisition of Whole Foods Market, Inc.
Follow the Amazon Money
Amazon was quick to point to spending on new warehouses, as well as delivery capacity for its retail business side and new data centers for Amazon Web Services. It has also hired a team of engineers whose job will be to focus on improving the Alexa artificial intelligence software and additional warehouse staff.
In a media call, CFO Brian Olsavsky explained that investments must meet four criteria before being considered as part of Amazon’s larger strategy. “Customers love them, they can grow to be large, they have strong financial returns and they are durable and can last for decades.” So far, this investment strategy seems to be paying off, as Amazon has seen a 25 percent sales growth during a time when other retailers are declining due to shifts in shopping patterns.
Is Amazon “The Great Disrupter?”
Experts like Trip Miller of Gullane Capital LLC have called Amazon “the great disrupter in traditional retail,” which certainly seems to be the case right now.
Amazon is now the origin point for 55 percent of product searches, according to personalization platform company BloomReach. Furthermore, 40 cents out of every dollar spent online in the past year went into Amazon’s coffers, compared to just 1.7 cents for Walmart.
But with so much wind in its sales, Amazon is continuing to seek out new challenges. Investors are eagerly watching as Amazon makes a move into brick and mortar retail with its purchase of Whole Foods. Amazon Web Services remains the economic all star of the team, however, bringing in $916 million in operating income, versus just $628 million from the rest of the operation. Investors expect Amazon to post a loss in operating income during 3rd quarter, as the company bulks up for the winter holiday sales season.