Alexa, AWS: Amazon's Breadwinners

Amazon.com reported a sharp jump in Q2 earnings Thursday, thanks again to its AWS cloud computing services. But the spotlight, not surprisingly, was directed at Amazon’s Alexa voice assistant. In fact, the name "Alexa" came up some 31 times in the earnings news release, according to Forbes.

“We want customers to be able to use Alexa wherever they are,” CEO Jeff Bezos said in the release. “There are now tens of thousands of developers across more than 150 countries building new devices using the Alexa Voice Service, and the number of Alexa-enabled devices has more than tripled in the past year. Our partners are creating a wide variety of new Alexa-enabled devices and experiences."

So imagine the potential for Amazon when you pair Alexa with AWS, long a bread winner for Amazon.

As Alexa-powered Echo devices are increasingly used on the mass consumer level through more than 13,000 Alexa-enabled smart home devices or in vehicles from Ford to Toyota cars, Amazon is set to change and capitalize on the way corporate work is going to be done — through Alexa for Business under AWS, an initiative the Seattle company first announced in November.

Q2 revenue at AWS, representing 11% of Amazon’s total Q2 sales, surged 49% to $6.1 billion, outpacing growth in other divisions, including the largest North America unit. AWS's operating income, at $1.6 billion, represented more than half of the company's total for the quarter.

In another big contrast, AWS's operating margin, a measure of profit that looks at the percentage of sales left after operating costs, widened by 5 points, to nearly 27%, from a year earlier. The North America segment — three-fifths of Amazon's sales — posted a much smaller 5.7% rate while the operating margin for the still-money-losing international division was negative.

That alone explains why Alexa for Business could become a game changer, stoking even more growth in AWS, Amazon’s real cash cow.

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ANGLING FOR ADVERTISERS

Highly profitable ad sales were a bright spot last quarter, according to Reuters.  The company said revenue from the category and some other items grew 132 percent to $2.2 billion. Analysts were expecting $2.1 billion, according to Thomson Reuters I/B/E/S.

The company is working to automate tasks for advertisers and to help media buyers measure the results.

Key to its allure has been that advertisers’ placements result directly in sales, reaching customers on Amazon with an intent to shop. That contrasts with ads reaching users who are on industry leaders Facebook and Alphabet Inc’s Google for a range of purposes.