It was a very good day at Nasdaq, especially for Amazon.com Inc’s (AMZN, Financial) Chief Executive Officer (CEO) Jeff Bezos who was the beneficiary of $4.6 billion at the end of the day. The company’s stock on Friday closed up $55.11, or 14%, at $445.10. This was the highest closing value since its market debut in 1997. Microsoft (MSFT, Financial) stock had risen by $4.53, or 10%, to $47.87 and along with Google Inc. (GOOG, Financial) climbing 2.9% to $573.66, this pushed up Nasdaq-100 Index by nearly 60 points to 4,537. The Dow Jones was up 21 points on the day to 18,080 mostly buoyed by Microsoft contributing 30 points. Investors in these companies had very good reason to celebrate as they raked in record profits and did better than the bullish estimates.
It is important to understand the reasons behind the market’s cheer so that the investors are confident of a continued upward trajectory. The trend of Cloud computing is here to stay and will not fall flat any time soon. There is one common factor among these three companies that is driving up the U.S. markets – the internet.
Reasons for profit
Cloud is finally coming of age and reaping substantial benefits for both Amazon and Microsoft. Amazon Web Services, which provides data storage and Cloud computing, surged to $1.57 billion, generating revenue of more than $5 billion in the four quarters that ended on March 21. If estimates are right, then the company is aiming to raise $6 billion this year. AWS rakes in profit when there is a surge of traffic to other host websites like Pinterest Inc. and Netflix Inc. (NFLX, Financial). It is the most profitable segment in the company, covering up losses from other departments. Moreover, Bezos has been investing in reducing delivery time by using drones, data centers and video programming to encourage users to spend more time on the website.
Following such rewarding moves, in a statement on Thursday, the company said that sales jumped 15% to $22.7 billion, although analysts had estimated a lesser average of $22.4 billion. Amazon shares then jumped by 8% in extended trading after the company declared its first-quarter sales figures.
Microsoft’s Cloud story
Satya Nadella’s second year as the CEO of Microsoft sees the company finally making some profitable revenue, although its model of revenue generated from Cloud computing is very different from Amazon. First, the consumer has to have the Office 365 subscription product installed, which will then provide a number of other services, including its Azure web-hosting project. To improve its consumer base and encourage growth, a user can access this software from multiple platforms and devices, and not be restricted to one. At a conference call on Thursday, Satya Nadella said that its Cloud operations annually generated almost $6 billion.
Diversification from core businesses
The big corporations are showing the way to diversification from their core business which had so far generated the bulk of profits. Each one is trying to elbow the other and grab a bigger piece of the still-nascent Cloud computing sphere, which seems to be the next big thing.
Although Amazon is an ecommerce and retailing, it is now heavily indulging in diversifying into the cloud computing race. After facing stiff opposing from IBM (IBM, Financial) and Microsoft, the company known for online shopping won a $600 million contract to host a Cloud of computing services for the federal government’s 17 intelligence agencies. This was huge deal to crack and has established Amazon as a steady competitor in the scene.
Microsoft’s Nadella, who took charge in February 2014 when the company was dealing with losses and bad projections, has been changing the focus of its growth gradually. The software developer which was suffering from decline in sale of personal computers has now been concentration on cloud and mobile software, and even working with rival products like the iPad.
