Technology

The Businesses That Will Build Future Growth at Amazon and Google

Amazon.com Inc. (NASDAQ: AMZN) made many of references to its Amazon Web Services (AWS) as it posted earnings. Google Inc. (NASDAQ: GOOGL) management finally disclosed information about YouTube’s role in future growth. As their core businesses show signs of aging, executives at both companies have begun to talk about the businesses that could mark their futures.

Amazon CEO Jeff Bezos has said on several occasions that AWS, its bet on the future of cloud computing, will be larger than its core e-commerce business. If so, Amazon will be transformed into a company that current investors can barely imagine. However, Bezos has a cloud customer base that is better than the ones rivals Microsoft Corp. (NASDAQ: MSFT) and International Business Machines Corp. (NYSE: IBM) have. These are Amazon’s current e-commerce retail partners, the smaller retailers that use Amazon as their storefront. If the tremendous growth of the cloud lifts all the boats in the sector, Amazon’s dominant presence will be buttressed even more.

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Amazon’s growth in its most recent quarter represented a 15% improvement to $29.3 billion. That growth rate is down from the pace it has set in most years past. Wall Street is still anxious that Amazon spends too much to gain e-commerce customers. That is the reason, presumably, that net profit fell from $239 million last year to $214 million for the most recently reported quarter. One of the advantages of AWS is that Amazon has already built much of its infrastructure to handle its current core business.

Google has deeper problems that Amazon. Its primary business is in trouble. Revenue for its most recent quarter was up 15% to $18.1 billion. However, that was slower than earlier in the year. “Cost per click,” a measure of Google’s financial health, fell 3% in the quarter. That was one of the aspects of earnings that spooked investors.

In the past, Google has barely mentioned YouTube, which it bought eight years ago for $1.65 billion. Over that period, most outsiders believe Google let the world’s largest video site languish. Suddenly it is part of Google’s discussion of its earnings. According to MarketWatch:

Google Inc. Chief Business Officer Omid Kordestani told analysts on the company’s conference call that YouTube viewer time is up 50%. Google is also seeing big momentum in mobile ads on YouTube. The company has also boosted tools to let advertisers know whether their ads were actually seen. Near-term prospects from their major business which are no longer growing at rates they have in the past, Google and Amazon have started to talk about the business which could be large revenue drivers in the future.

As investors worry about the prospects for their major business, Google and Amazon have started to discuss the businesses that may drive their futures. Based on recent financial results, the search and e-commerce companies will need them.

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