Amazon Extends Growth Streak, Unfazed By Lavish Spending

By Steve Wynne-Jones
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Amazon Extends Growth Streak, Unfazed By Lavish Spending Inc.’s unbroken 20-year streak of double-digit revenue growth shows no sign of slowing this year, helped by an influx of online shoppers who are abandoning stores and new business for its cloud-computing division.

The company topped profit and revenue estimates in the first quarter and projected sales that may beat projections in the current period, reinforcing its message to investors that big spending on warehouses, movies and devices are all part of a winning formula.

“Amazon appears to be firing on all cylinders,” said Colin Sebastian, an analyst at Robert W. Baird & Co. “The core e-commerce segment growth remains very healthy, Amazon Web Services was fairly stable even with the recent price reductions, and growth in subscription services and advertising is robust, starting to move the needle, and helping to augment profitability.”

Share Rise

Shares gained as much as 5.1 percent in extended trading after closing Thursday at a record $918.76 in New York. The stock has jumped 23 percent this year.

The world’s largest online retailer is dominating e-commerce in the U.S. with its $99-a-year Amazon Prime subscription, which includes delivery discounts, music and video streaming and photo storage that keep shoppers engaged with the website. Seattle-based Amazon had 80 million Prime subscribers in the U.S. as of March 31, an increase of 36 percent from a year earlier, according to Consumer Intelligence Research Partners. Prime memberships help lock in loyalty, which is critical as competitors such as Wal-Mart Stores Inc. enhance their e-commerce offerings to slow Amazon’s momentum.


Amazon Web Services, its cloud-computing division, subsidizes the company’s spending for various initiatives such as expanding into India and Australia, speeding up delivery times to as little as an hour on select products, adding new skills and devices for its voice-activated Alexa platform and producing original movies and shows.

First-quarter sales increased 23 percent to $35.7 billion. Net income was $724 million, or $1.48 a share, the company said in a statement. Analysts estimated profit of $1.08 a share on revenue of $35.3 billion, according to data compiled by Bloomberg.

Amazon Web Services revenue gained 43 percent to $3.66 billion. That’s slower than 47 percent year-over-year growth in the previous quarter.

Profit Margins

A combination of better profit margins in the cloud-computing unit and a smaller increase in shipping costs helped Amazon beat earnings projections, said Josh Olson, analyst at Edward Jones & Co. Amazon Web Services had a profit margin of 24.3 percent in the first quarter, compared with 23.5 percent a year earlier. Shipping expenses, a major cost for Amazon, increased by 30 percent, the slowest pace in at least six quarters, Olson said.


Still, company spending remains an investor concern. Operating expenses rose 24 percent to $34.7 billion in the quarter.

“They earned $724 million on $35.7 billion in sales, or a whopping 2 percent,” said Michael Pachter, analyst at Wedbush Securities. “Sales grew by $6.6 billion and net income grew by $200 million. They’re playing mind games with us.”

Amazon on Thursday forecast operating income in the current quarter of $425 million to $1.08 billion on net sales of $35.3 billion to $37.8 billion. That compares with operating income of $1.29 billion on sales of $30.4 billion in the same period a year ago. Analysts projected sales of $36.9 billion in the current quarter.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.


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