AWS sees sales surge in strong quarter
- 27 April, 2018 10:07
Jeff Bezos - CEO, Amazon
Amazon’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, surprising all but the most optimistic on Wall Street.
Amazon's shares rose six per cent in after-hours trade.
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 per cent rise in sales from a year earlier to US$5.44 billion, beating the average estimate of $5.25 billion, according to Thomson Reuters I/B/E/S.
"That business continues to grow very well and has seen great customer adoption," Brian Olsavsky, Amazon’s chief financial officer, said on a conference call.
He added that costs related to data centers, fulfillment centers 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.
Earlier this year, Amazon announced a partnership with JPMorgan Chase & Co and Berkshire Hathaway Inc to determine how to cut health costs for hundreds of thousands of their employees.
Broadly, 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 US$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. Amazon said net income rose to US$1.6 billion, or US$3.27 per share in the quarter ended March 31. Analysts on average were expecting US$1.26 per share, according to Thomson Reuters I/B/E/S.
Sales rose 43 per cent to US$51.0 billion in the quarter, beating analysts' average estimate of US$49.8 billion.
The fast ascent of Amazon and its CEO Jeff Bezos, now the richest person in the world, has drawn the attention of US 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 US 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 said.
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.
In addition to announcing an increase in the price of yearly Prime memberships, Amazon previously increased fees for US Prime members on month-to-month 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.
"We still feel it's the best deal in retail," Olsavsky said, the number of items eligible for free two-day shipping increased in recent years from 20 million to more than 100 million.
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 from 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 in a note.
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 1 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.
(Reporting by Jeffrey Dastin in San Francisco and Arjun Panchadar in Bengaluru; Editing by Bernard Orr and Lisa Shumaker)