A tale of two cloud providers: Amazon's miss on sales sends stocks down, while Microsoft's Azure soars

Retail giant Amazon (NASDAQ: AMZN), despite touting a 51 percent annual boost in new subscribers to its Prime membership program -- which includes online video streaming -- completely missed analyst estimates for sales in the fourth quarter of 2015. The company saw earnings per share of $1 on $35.75 billion in sales, well below forecast EPS of $1.56. Meanwhile, its cloud services competitor Microsoft (NASDAQ: MSFT) posted EPS of 78 cents on $25.7 billion in revenue for its fiscal second-quarter 2016, well above Wall Street estimates.

Amazon Web Services (AWS) and Microsoft are arguably the two most visible and influential cloud providers in the online video ecosystem today. So their earnings, released on the same afternoon, painted an interesting picture.

Analysts had forecast Amazon to post EPS of $1.56 per share on almost $36 billion in revenue, according to CNBC. The news led to a minor bloodbath in after-hours trading on Thursday with Amazon's stock dropping more than 12 percent.

Microsoft, on the other hand, stayed well above forecasts, posting adjusted EPS of 78 cents on $25.7 billion in revenue, compared to estimates of 71 cents per share on $25.26 billion in revenue. The results led to a nice 8 percent boost in its stock prices after hours immediately following its earnings release.

The contrast in responses by investors to both companies is interesting, but not as simple as results that come in over or under estimates. For example, investors were unruffled by Amazon's lackluster results in past quarters.

Amazon's future isn't entirely determined by how well AWS does. Although the cloud service makes up a large part of the company's financial outlook, the consumer side of Amazon still has an effect: subscribership to its Prime program, which includes Prime Video along with its shipping discounts, and its retail division's performance all have an effect on investors' response to the company's quarterly earnings.

Amazon beat out some analyst guesstimates on its subscribership in 2015, posting a 51 percent increase in signups worldwide to its Prime membership. The U.S. saw a 47 percent jump in subscribers this year, while international signups to Prime Video nearly doubled year over year in the fourth quarter.

Prime memberships along with sales of its Fire TV streaming devices and Kindle Fire tablet helped boost Amazon's net income for the full year 2015 to $596 million, or $1.25 per diluted share, the company reported. Amazon also got a handle on its free cash flow, reporting a 74 percent increase to $11.9 billion over the trailing 12 months.

Net income for the fourth quarter of 2015 was $482 million or $1 per diluted share, up from $214 million a year previously.  

On a side note, T-Mobile (NYSE:TMUS) added Amazon Video to its Binge On streaming service (along with WWE Network, Univision NOW and Fox News), increasing viewing options for Prime subscribers.

But back to Microsoft: the computing giant has in recent years put a lot of focus into its cloud services initiative, talking up its Azure product with broadcasters and OTT providers alike that are looking for affordable ways to boost their streaming performance. That cloud business is holding the attention of investors, CNBC noted. And Azure did very well in its fiscal Q2, posting a 140 percent "constant-currency" growth. Revenue from Azure's premium services nearly tripled year over year, Microsoft reported.

Overall server products and cloud services revenue grew 10 percent, all within Microsoft's Intelligent Cloud division, which saw its revenues grow 5 percent to $6.3 billion.

For more:
- see the Amazon earnings release
- see the Microsoft earnings release
- see this TechCrunch article
- see this CNBC article
- and this article
- see this Re/code article

Related articles:
Amazon Prime may have 54M subscribers, must focus on retention, analyst says
Competition, consolidation, and … Cosmo? A look at OTT's year to come
Broadcasters finally embrace OTT tech, even if audience is still in the driver's seat

Suggested Articles

Plex is partnering with Lionsgate to grow its library of ad-supported video on demand content prior to the planned rollout to consumers in late 2019.

Given the accelerating rate at which consumers are going online for entertainment, Roku said that streaming TV viewers could surpass the amount of pay TV…

Facebook is officially releasing a connected TV streaming device called Portal TV that includes a built-in camera for video calls and co-watching.