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Amazon's cloud gains are its silver lining

Amazon.com President, Chief Executive and Chairman Jeffrey Bezos answers a question at the Consumer Reports headquarters in Yonkers, New York, May 11, 2011. REUTERS/Mike Segar

NEW YORK (Reuters Breakingviews) - Amazon Chief Executive Jeff Bezos is famous for brushing off profit concerns. The fourfold increase in the $400 billion online retailer’s 2016 profit from a year earlier, reported on Thursday, was a pleasant surprise. But true to form, the company may spend more than analysts thought it would in the first quarter. Bezos still prefers investment to earnings.

The online titan made an encouraging $2.4 billion in net income during 2016. Amazon Web Services, the cloud platform, accounted for nearly 75 percent of the year’s operating profit. In the fourth quarter, revenue growth at AWS came in at 47 percent year-over-year – a slight slowdown from the previous quarter, but still rapid with operating margins steady at about 33 percent.

The bottom line was better than Wall Street expected, even if the top line fell slightly short. But it seems some analysts hoped that maybe – finally – the upward trend in profit would continue, beginning to justify the company’s stretched valuation, currently running around 100 times forecast earnings, according to Thomson Reuters data.

It isn’t yet to be, however, with the company saying it will make at most $900 million of operating income in the first quarter, against outside forecasts of $1.3 billion. Amazon’s volatile shares took a 4 percent hit in late trading after it published its numbers.

Bezos’ plan is to ramp up investment on everything from warehouses and airplanes to its hit Alexa voice-control device and video-content ambitions. After all, Amazon is trying to compete with Netflix. Reed Hastings’ video-streaming service plans to shell out some $6 billion on TV shows and movies this year.

Investing most of what the behemoth generates rather than worrying about net profit has served Amazon’s growth ambitions and investors well over the years. The CEO is showing no signs of changing his approach. The emerging cloud-services giant within a giant, with strong growth and healthy profit, is a silver lining which may keep investors patient.

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