US growth hits 4.1%, fastest since 2014

Posts record profit of $2.5 billion; shares jump 4 per cent to all-time high

The US economy’s growth rate accelerated 4.1 per cent in the second quarter, the fastest since 2014, letting President Donald Trump claim a win for his policies even though expansion is projected to cool. The annualised rate of gains in gross domestic product was shy of the 4.2 percent median forecast in a Bloomberg survey.

Amazon.com forecast strong fall sales and posted a profit that was double Wall Street targets on Thursday thanks to the retailer’s younger, higher-earning businesses, including cloud computing and advertising.

Shares rose 4 per cent to hit an all-time high on Friday. The report was a relief to investors in the US technology sector, still reeling from a profit warning by Facebook on Wednesday that plunged its stock 19 per cent. Amazon’s report shows how the world’s largest online retailer has increasingly learned to compensate for the high costs of fast package delivery and video streaming by controlling expenses and building up higher-profit businesses.

It was the first mover in the business of selling data storage and computing power in the cloud, a bet that continues to reap rewards and give it the leeway to invest in grand projects.

For instance, the company is working to ship food from Whole Foods Market stores across the US, in an ambitious attempt to bring groceries into the age of online retail. Amazon’s spending typically climbs in the summer quarter, pressuring profits as the company prepares for Christmas and the winter holidays, its peak sales period each year.

Yet the company said it expects an operating profit between $1.4 billion and $2.4 billion, up from $347 million a year earlier. The company also reported a second-quarter profit of $2.5 billion, its largest ever.

“A big contributor to the quarter and the last few quarters obviously has been strong growth in our highest profitability businesses and also advertising,” Brian Olsavsky, Amazon chief financial officer, said on a call with media. “We’ve seen a greater-thanexpected efficiency in a lot of our spend in things like warehouses, data centers, marketing.” The Seattle-based company cut hundreds of consumer jobs in its headquarters earlier this year, in a move that may have lowered costs and freed up resources for fast-growing areas like Amazon’s voice aide Alexa.

Wedbush Securities analyst Michael Pachter called the expansion in the company’s gross profit margin “remarkable,” citing impressive results from cloud sales and services to third-party merchants on Amazon. “That drove the bulk of the earnings beat,” he said.

CFO Olsavsky noted that third-party sales were changing the profit equation for Amazon, too. The company for years was notorious for roller-coaster results. More lucrative than sales of goods that Amazon owns, third-party transactions offer the company a commission that increases significantly when merchants choose to hand over fulfillment and advertising to Amazon, as many do. Half of all units sold through Amazon are from these sellers, and these sales keep growing.

Highly profitable ad sales were a bright spot last quarter.

The company said revenue from the category and some other items grew 132 per cent to $2.2 billion. Analysts were expecting $2.1 billion. The company is working to automate tasks for advertisers and to help media buyers measure the results, Olsavsky said. Key to its allure has been that advertisers’ placements result directly in sales, reaching customers on Amazon with an intent to shop.

That contrasts with ads reaching users who are on industry leaders Facebook and Alphabet’s Google for a range of purposes. Amazon Web Services, saw its operating profit margin expand from a year earlier.