Six Takeaways From Amazon's Second Quarter Earnings

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The business world held its collective breath when Amazon reported second-quarter earnings on Thursday. While sales for the Seattle-based ecommerce giant were up 25% to $38 billion over the year-earlier period, net income, at $197 million, failed to meet analyst expectations.

Yet the company, which in the last week alone has introduced Amazon Spark, its own social network, and a private-label accessories line called The Fix, is just getting started. Much of the recent sales growth was led by increased adoption of the company's Fulfillment by Amazon business-to-business offering and its Amazon Web Services public cloud program, which now counts and California Polytechnic State University as customers, though growth has slowed in recent quarters.

Below, a few key takeaways:

More value in Prime

The company doesn't plan to change the price of its Prime $99 subscription service anytime soon, even though the membership carries more offerings. Revenue from retail subscriptions, which includes Prime memberships, music and audio, grew 53% over the comparable quarter last year.

Marketing investments are on the rise

On a call with analysts, Chief Financial Officer Brian Olsavsky noted that marketing expenses are up, driven primarily by an increase in headcount for the company's sales team. In fact, Amazon's advertising salesforce has swelled 42% this quarter over the year-earlier period—higher than the rate of growth of the business itself.

Expect more brick-and-mortar experimentation ...

Physical stores offer Amazon a showcase for its devices, in addition to a place to sell books. The company, which now has eight bookstores and another five in the works, plans to use the format as a teaching opportunity for customers to interact with products like the Echo. Olsavsky said at a store in Seattle a third of consumers gathered around the device table.

... And more groceries

On the heels of its expected $13.7 billion acquisition of Whole Foods, Amazon is continuing to look at innovation in the grocery space, including through its Amazon Go checkout-free store (still in beta), physical pick-up points and Amazon Fresh delivery. "There will be no one solution," said Olsavsky.

Competitors are on notice

Amazon can afford to take an earnings miss in order to reinvest in its myriad new business initiatives. Other retailers, like Macy's and Target, are not so lucky.

"The unfortunate truth for other retailers is that Amazon's growth and success will force them to reduce margins, especially if they want to grow in ecommerce," wrote Neil Saunders, managing director of GlobalRetailData, in a research note. "And While Amazon is comfortable operating with relatively low profitability, many other retailers - and their investors - are not."

Jeff Bezos is no longer the richest man in the world

A report from Bloomberg early Thursday in which Bezos, with a net worth of $90 billion, was crowned richest person on the planet, was short-lived. Following Amazon's earnings miss, investors sent the company's share price down, and Bezos' monetary status fell in the process.

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