Prime loyalty club key to jump in revenues

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.