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How Amazon’s Margins Are Trending

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Sep. 12 2016, Updated 11:04 a.m. ET

Amazon’s steady margins bolster investor confidence

Wall Street has always been in love with Amazon (AMZN) stock despite the company not generating steady margins. Earlier, Amazon went back and forth between profits and losses. However, the company has managed to successfully reverse the trend and has produced consistent operating margins in the past five quarters.

If we look at the margin trend in the last four quarters, the picture looks even better. Amazon’s margins are expanding at a very high rate as the chart below shows. As for the most recent reported quarter, the company managed to report operating income of $1.3 billion, which nearly tripled from the prior-year quarter. Meanwhile, operating margin stood at 4.2%, showing an expansion of about 220 basis points YoY (year-over-year).

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Outlook

As stated in the earlier part of the series, the company’s cloud business is growing at an astounding rate and is the primary reason behind the company’s strong margins. The segment generates fast revenue growth, which provides leverage for growth in the company’s overall margins.

In addition, third-party sellers benefit Amazon in a big way. The company doesn’t have any product costs associated with these sales, yet it gets a commission from them. Thus, they’re a great source of profit for Amazon. The company is confident that it will repeat its strong margin performance in the coming quarters.

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