Amazon's third-quarter results were driven by higher merchandise sales and staggering growth in its cloud business, Amazon Web Services. North American Electronics and General Merchandise, or EGM, sales grew 35% year over year and 400 basis points sequentially. Amazon shipped 26% more units, and each customer bought 11% more stuff in the quarter. Globally, EGM grew 27% as foreign users discovered Amazon Prime, the retailer's premium delivery service.
The number of active customers grew 13%.
Amazon's cloud service, Amazon Web Services, blew past estimates. AWS grew 78% to $2.085 billion in revenue. AWS is on track to report $8 billion in revenue this year and something over $12 billion next year.
While those numbers were impressive, total operating profit of $406 million vs. the consensus Street estimate of $40 million really got investors excited. Gross margin increased 300 basis points to 33.9% and gross profit was up 45%. Earnings per share were 17 cents.
Amazon's quarterly reports always bring out the naysayers. Negatives include headcount growth, an increase in shipping costs and higher capital expenditures. Headcount grew 49% as the company continues to hire aggressively. Some investors worry that increasing headcount will wreck operating profits (or at lease put a cap on operating profit growth.)
Shipping costs were up 35%, as deals on Prime Day pushed some existing customers to order more stuff.
Capital expenditures were $1.2 billion. Every quarter investors wonder when capex will slow, but they never seem to get a straight answer. Amazon continues to pour money into expanding its fulfillment capacity and its cloud business.
I know it's hard to believe, but last year Amazon's net sales grew 20% and the company is on track to deliver 21% this year and probably another 20% next year. That means, by 2016, Amazon will have something like $130 billion in revenue, up from $88 billion in 2014.
Year to date the stock is up 98%, which should keep any sane investor on the sidelines. But, if you held on since the company went public, you'd be up over 4,000%.
I think the stock can keep going, but I would wait for a better price.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.