Amazon Video Investments Nearly Double
Amazon’s increased investments in areas including digital video content, cloud services offered by its Amazon Web Services (AWS) division, and its artificial intelligence-based Alexa personal assistant hurt the company’s results in the third quarter, ended Sept. 30. Shares in Amazon stock fell after it reported third-quarter results and gave a fourth-quarter forecast Oct. 27 that were both weaker than analysts had expected. Shares were down more than 4% at about $785 in early afternoon trading Oct. 28. But Amazon still reported stronger results for the third quarter than it did a year earlier, with revenue growing 29% to $32.7 billion and profit increasing to $252 million, or 52 cents a share, from $79 million, or 17 cents, in the third quarter a year ago.
Amazon continues to invest in its efforts to compete against Netflix by offering not only a competitive library of movies and TV shows from third parties, but original content as well.
“We will continue to invest in the business where we are seeing significant customer traction,” CFO Brian Olsavsky told analysts on an earnings call late Oct. 27. “But the largest individual reasons for the ramp-up in investment” between the first and second halves of this year and also the second half of this year compared to the second half of last year are the areas that he mentioned on Amazon’s first-quarter earnings call, he said.
“First, video content and marketing associated with that is nearly doubling year-over-year” in the back half of this year, and it “continues to be a large increase” in the third and fourth quarters this year, he said.
Amazon’s Prime Video online service is available now in four countries: the U.S., U.K., Germany and Japan, he said, adding the company already disclosed that the service will be expanded to India soon. The content that Amazon is creating, “especially through Amazon Studios, we are generally holding the worldwide rights to and can use that in other countries as well,” he said.
Another significant area of investment is Amazon’s fulfillment centers. Amazon added 18 centers in the third quarter and then added five more in October, Olsavsky said. For the fiscal year, it will add 26 centers — most of them in North America, up from only 14 last year, he said. The number of warehouses that Amazon has added represents a 30% increase in square footage year-over-year, he said.
He went on to say: “What you’re seeing essentially in the second half of this year is a step-up investment primarily around digital content and also the fulfillment center investment, but also things like Echo and Alexa, which we’re adding a lot of resources to,” as well as an expansion in India and AWS “as we add people there to support additional service.” The Echo smart speaker is Amazon’s first device to be based around Alexa functionality.
Amazon continues to invest in AWS “on behalf of our customers in addition to the technologies that make integrations easier,” Darin Manney, head of investor relations, told analysts on the call. “We’re going to continue to do that, specifically things like the database migration tool that are helpful for customers when they move production databases from on premises to the cloud with virtually no downtime,” he said, adding that many AWS customers are starting to choose and “continue to choose the AWS Schema Conversion Tool which really switches database engines to get out of old guard proprietary databases and onto AWS.”