Amazon.com, Inc. (AMZN) used to be known for big growth but no profits. But now, after another impressive Amazon earnings report, AMZN stock holders have been rewarded with their second straight quarterly profit despite forecasts of a loss in both Q2 and Q3.
No wonder Amazon stock is up 110% since Jan. 1.
The reason the bulls like AMZN stock isn’t just the recent profitability, but the source of those profits: namely, Amazon Web Services, the company’s fast-growing cloud-computing arm.
Any threat to AWS should be taken very seriously, then. And that’s why Amazon stock holders can’t afford to count out tech rival Oracle Corporation (ORCL).
An Amazon Killer?
It’s hard to overstate the influence of Amazon Web Services in this recent bull run for AMZN stock.
Numbers have been consistently impressive, with the most recent quarter featuring $2.09 billion in sales over $1.17 billion in the previous period for 79% year-over-year growth. The icing on the cake was an amazing operating profit of $521 million for the segment — neck-and-neck with the $528 million in operating income from North America e-commerce.
With numbers like these, it’s impossible look at AWS and not get excited.
But if you’re another tech company and you haven’t also seen the potential here and moved to get a piece of the action, you deserve to be left in the dust. After all, Microsoft Corp. (MSFT) promoted current CEO Satya Nadella to the top job because of his successes with cloud efforts — and because of his ambitious vision for $20 billion in cloud computing software sales by 2018.
Heck, even Alibaba Group (BABA) is in on the action with a cloud offering of its own in Asia.
Oracle has identified the same opportunity and, while not as successful thus far as Amazon, has big plans for the future. ORCL spent the majority of its annual conference this fall talking up cloud computing efforts, and beating the drum on pending offerings that are eerily close to Amazon.com products in both use and name.
Bottom Line
Now, Oracle is acting as much out of envy and perhaps even desperation as anything else. While AMZN stock has doubled in 2015 despite a rough market, ORCL stock is down over 11%. And longer term, Oracle stock is up just 40% or so in the last five years vs. over 290% for Amazon stock and 70% for the broader S&P 500 in the same period.
But with some $56 billion in cash and investments and a will to roll out an ambitious suite of cloud products, AMZN investors should be looking over their shoulder at Oracle as it ramps up in the next six months.
And in addition, to ORCL, Amazon stock holders may want to keep an eye on Microsoft and Alphabet (GOOG, GOOGL) and — well, everyone else.
Amazon stock has certainly found a cash cow in the cloud, but it is certainly not the only one after the tremendous growth offered in the space.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
