Amazon shares soar after shocking investors

2015-07-26 14:00 - Spencer Soper
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Jeff Bezos, CEO and founder of Amazon. (Reed Saxon, AP, file)

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San Francisco - Amazon.com rose 9.8% on Friday after posting a surprise profit that showed investors the web retailer can make money when it puts the brakes on investments.

Amazon reported on Thursday that second-quarter revenue rose 20% to $23.2bn, helped by a fast-growing cloud- computing business and initiatives to lure more customers. Net income was $92m, or 19 cents a share. Analysts projected, on average, a loss of 14 cents on sales of $22.4bn.

Amazon CEO Jeff Bezos is pushing the web retailer, which he founded two decades ago, beyond sales of books, electronics and household items as the company matures. While Bezos has focused on pouring profits back into growing Amazon’s business, he has periodically pulled back on spending to demonstrate that Amazon can be profitable.

“They are showing investors that if they want to deliver profits, they can,” said Michael Pachter, an analyst at Wedbush Securities, who has the equivalent of a buy rating on the stock. “Amazon is a dominant online retailer, well on its way to becoming one of the world’s largest retailers.”

The shares climbed to close at a record $529.42 in New York, leaving the stock up 71% this year. The advance pushed Amazon’s market value to about $248bn, more than that Wal-Mart Stores, the world’s largest retailer.

Operating expenses grew slower than sales, rising 17% to $22.7bn, Seattle-based Amazon said. Spending on marketing and fulfillment centers were both unchanged as a percentage of sales compared with a year earlier, according to Brian Olsavsky, Amazon’s chief financial officer.

New businesses

The e-commerce pioneer is investing to lure more customers as competition intensifies. Wal-Mart is rolling out a new membership service to challenge Amazon Prime, which offers two- day shipping, TV shows, photo storage and other benefits for an annual fee.

Startup Jet.com officially debuted this week, following months of testing to give online deal-hunters an alternative to Amazon.

A day of sales on July 15 to mark Amazon’s 20th anniversary, which the company called Prime Day, exceeded expectations, the CFO said.

The promotion, designed to drive Prime membership signups, featured reduced prices on television sets, lawnmowers and other goods and helped to drive orders surpassing Black Friday, an annual US sales event that kicks off the year-end holiday shopping season.

Cloud computing

Amazon’s cloud-computing division, which offers web data storage and computing services and includes customers such as Pinterest and Netflix, had sales of $1.82bn, up 81% from a year earlier. The Amazon Web Services Group reported a revenue gain of 49% in the first quarter.

The cloud-computing effort has disrupted traditional technology companies as customers buy less hardware and software, instead renting computers from Amazon.

Amazon forecast third-quarter revenue of $23.3bn to $25.5bn, compared with analysts’ average projection of $23.9bn.

“We’ve had competition for 20 years now from some of the biggest names in retail and other areas,” Olsavsky said on a call. “We’re used to competition, but we focus on the customer ... We’re happy with the results.”


Read more about: amazon.com  |  wal-mart  |  cloud computing

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