National Post

Amazon earnings on cloud nine

STRONG GROWTH IN RETAIL AND CLOUD COMPUTING SERVICES BLOWS AWAY ANALYST EXPECTATIO­NS OF A MISS

- JEFFREY DASTIN AND ARJUN PANCHADAR

Amazon 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.

Separately, the company and the U.S. National Football League announced a deal to stream Thursday night games during the 2018 and 2019 seasons on Amazon’s Prime Video.

Amazon’s shares rose 6 per cent 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 US$1.6 billion, or $3.27 per share in the quarter ended March 31. Analysts on average were expecting $1.26 per share, according to Thomson Reuters I/B/E/S.

Sales rose 43 per cent 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 U.S. 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 U.S. Postal Service to cover delivery costs.

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 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 U.S. Prime members on month-tomonth plans, affecting some 30 per cent of subscriber­s by Cowen & Co.’s estimate. Sales from Prime fees and other subscripti­ons grew 60 per cent to US$3.1 billion.

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

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

Amazon’s stock has outperform­ed the S&P 500, rising 30 per cent this year as of Thursday’s market close, compared with the S&P’s less than one-per-cent 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 (AWS), 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 US$5.44 billion, beating the average estimate of US$5.25 billion, according to Thomson Reuters I/B/E/S.

“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 centres, fulfilment centres 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 US$6 billion or more this year, up from US$5 billion in 2017.

 ??  ??

Newspapers in English

Newspapers from Canada