Amazon Q1 results buck expectations with huge profits, optimistic outlook; Prime membership fees hiked in US

New York: Inc’s march in retail and cloud computing showed no sign of slowing on Thursday, as the company reported a surge in first-quarter profit and a rosy outlook for the spring, both ahead of expectations.

Amazon’s shares rose 6 percent in after-hours trade.

Seattle-based Amazon is winning business from older, big box rivals by delivering virtually any product to customers at a low cost, and at times faster than it takes to buy goods from a physical store. It acquired Whole Foods Market for $13.7 billion last year to help it send groceries to shoppers’ doorsteps.

Amazon’s results bucked expectations that it would plow more profit into investments, as it has done in the past. The world’s largest online retailer said net income rose to $1.6 billion, or $3.27 per share in the quarter ended 31 March. Analysts on average were expecting $1.26 per share, according to Reuters.

Sales rose 43 percent to $51.0 billion in the quarter, beating analysts’ average estimate of $49.8 billion.

The fast ascent of Amazon and its Chief Executive Jeff Bezos, now the richest person in the world, has drawn the attention of US President Donald Trump. Writing critical Twitter posts about Amazon and the Washington Post, which Bezos privately owns, Trump has claimed without evidence that Amazon has not paid enough money to the US Postal Service to cover delivery costs.

Amazon. Representational image. AP

Amazon. Representational image. AP

Success is “the best revenge that Bezos can get against the administration for its veiled threats about sales taxes and not paying its fair share,” said Wedbush Securities analyst Michael Pachter told Reuters on Wednesday.

Prime, Amazon’s loyalty club that includes fast shipping, video streaming and other benefits, has been key to the jump in revenue. Members – now more than 100 million globally – spend above average on Amazon.

The company recently increased fees for US Prime members on month-to-month plans, affecting some 30 percent of subscribers by Cowen & Co’s estimate. Sales from Prime fees and other subscriptions grew 60 percent to $3.1 billion.

Revenue from third-party sellers paying to promote their products on was an unusually large bright spot during the quarter. Advertising and “Other” sales, including from co-branded credit cards, grew 139 percent to $2.03 billion.

“The significant acceleration in Other revenues suggests Amazon’s advertising ambitions continue to ramp quickly, and is now large enough to drive upside in Amazon’s margin profile,” said Baird Equity Research analyst Colin Sebastian in a note.

Amazon said it expects operating profit this quarter between $1.1 billion and $1.9 billion, up from $628 million a year earlier. Analysts were expecting $1.01 billion, according to analytics firm FactSet.

Amazon’s stock has outperformed the S&P 500, rising 30 percent this year as of Thursday’s market close, compared with the S&P’s less than 1 percent decline.

Its shares trade at a premium to many peers. The stock’s price-to-earnings ratio is more than 11 times that of cloud-computing rival Microsoft Corp.

Amazon Web Services, which handles data and computing for large enterprises in the Cloud, saw its profit margin expand in the quarter. It posted a 49 percent rise in sales from a year earlier to $5.44 billion, beating the average estimate of $5.25 billion, according to Reuters.

“That business continues to grow very well and has seen great customer adoption,” said Brian Olsavsky, Amazon’s chief financial officer, on a call with reporters.

He added that costs related to data centers, fulfillment centers and other investments “scale really well when we have high-volume quarters” like the one Amazon reported.

The company has been notorious for running on a low profit margin. Yet its big bets on new services and entry into new industries have reaped shareholders rewards over the past decade.

Amazon continues to invest in a wide array of areas. The company plans to spend more on video content this year, including its renewed deal to stream Thursday Night Football games and a prequel television series to “The Lord of the Rings” in the works. Wedbush’s Pachter estimated that content spending will be $6 billion or more this year, up from $5 billion in 2017.

Earlier this year, Amazon announced a partnership with JPMorgan Chase & Co and Berkshire Hathaway Inc to determine how to cut health costs for hundreds of thousands of their employees.

And Amazon is expanding its retail footprint outside the United States, particularly in India. Its international operating loss grew 29 percent to $622 million in the first quarter.

Amazon’s global headcount is up 60 percent from a year ago at 563,100 full-time and part-time employees, thanks to a hiring spree and an influx of workers from Whole Foods Market.

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Updated Date: Apr 27, 2018 08:29 AM

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