Google and Amazon Had Different Bars to Clear

Google and

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both internet behemoths, each face their own specific set of challenges. Only Google headed into its second quarter report with nowhere to go but up.

Both companies reported accelerating growth Thursday afternoon. Amazon’s second-quarter revenue jumped 20% year over year to $63.4 billion, beating Wall Street’s estimates and exceeding the 16% growth reported in the first quarter. Google parent


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Inc., meanwhile, saw revenue rise 19% to $38.9 billion, following 17% growth in the first quarter.

But their bottom lines looked quite different. Alphabet’s operating income jumped 13% from last year’s adjusted numbers to $9.2 billion—an operating margin of 29% for the period.

Amazon’s operating income rose only 3% to $3.1 billion for a margin of 4.9% compared with the record 7.4% reported in the previous quarter.

Amazon had previously broadcast plans to invest more in costly ventures like one-day shipping, but profitability still trailed Wall Street’s projections. Amazon’s shares slipped 2% following the report while Alphabet’s jumped 9%.

That reaction reflects the widely different expectations the two companies faced. Despite Amazon’s earlier slip, it remains a growth machine on track to supplant


Inc. as the world’s largest tech company by annual revenue.

Investors had thus rewarded the company, sending its stock price up 31% this year for a market value just shy of $1 trillion. Alphabet, conversely, got trounced after reporting a surprising slowdown in Google’s core ad business last quarter. Its stock was up less than 9% for the year, lagging even the Dow’s 16% rise.

Amazon has long outpaced Google in finding new growth drivers to augment an already sizable core business. That is reflected primarily in the companies’ respective cloud computing operations. Amazon’s AWS is the industry leader with annual revenue now past the $30 billion mark—larger than most of the companies in the S&P 500’s Information Technology group. But AWS also showed its lowest growth rate ever in the second quarter, with operating margins slipping to 25% from 29% in the previous quarter.

Google, meanwhile, says its own cloud platform is now generating around $8 billion in revenue annually. Growth in the segment containing the cloud business jumped 40% year over year. Google is still running a distant third to Amazon and Microsoft in the cloud, but on Thursday it showed the advantages of being an underdog.

Write to Dan Gallagher at

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