Amazon First-Quarter Revenue Tops Estimates on Kindle

Amazon.com Inc. (AMZN), the world’s largest Internet retailer, rose after it beat analysts’ first- quarter revenue and earnings estimates on buoyant demand for Kindle devices and e-commerce services for outside vendors.

The shares climbed the most in more than two years. Net income was $130 million, or 28 cents a share, compared with $201 million, or 44 cents, a year earlier, the company said in a statement late yesterday. Sales rose 34 percent to $13.2 billion. Analysts on average estimated earnings of 7 cents on sales of $12.9 billion, according to data compiled by Bloomberg.

Chief Executive Officer Jeff Bezos is looking to add customers by pouring money into new versions of the Kindle and warehouses that are equipped to send out products faster. In the quarter when it was introduced last November, the Kindle Fire tablet rocketed to No. 2 in the market behind Apple Inc.’s iPad, according to IDC, and it remains the best-selling item on Amazon’s website, the company said.

“It was above expectations, both top and bottom line,” Kerry Rice, a San Francisco-based analyst at Needham & Co., said in an interview.

Income from operations was $192 million in the first quarter, Seattle-based Amazon said. Analysts on average had projected $99.4 million in operating profit. Third-party unit sales represented 39 percent of the total and grew 60 percent from a year earlier, Amazon said.

Photographer: Matthew Staver/Bloomberg

An Amazon.com Inc. Kindle Fire tablet computer sits on display at a Super Target store in Denver. Close

An Amazon.com Inc. Kindle Fire tablet computer sits on display at a Super Target store in Denver.

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Photographer: Matthew Staver/Bloomberg

An Amazon.com Inc. Kindle Fire tablet computer sits on display at a Super Target store in Denver.

Shares Climb

The shares surged 16 percent to $226.85 at the close in New York, the biggest gain since Oct. 23, 2009.

Amazon trades at about 188 times trailing 12-month earnings, compared with an average of about 58 for similar companies, according to data compiled by Bloomberg.

This is the first quarter in three that Amazon reported higher revenue than analysts were predicting, data compiled by Bloomberg show.

“First solid top and bottom line beat in quite a while, when some investors were expecting a miss on one or both,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco, who has an outperform rating on the company’s shares. “If Amazon can ultimately drive higher margins this year on continued strong revenue growth, then we could see further upside in shares.”

Profit Margin

Amazon’s operating margin, a measure of profitability, was 1.46 percent in the first quarter, according to data compiled by Bloomberg. Margin for all of 2011 was 1.79 percent, the lowest for any year since 2001.

Amazon made more than half of its first-quarter net income from so-called equity-method investments, which include a 29 percent stake in LivingSocial.com, the second-largest daily deal site. The investments give Amazon “the ability to exercise significant influence, but not control, over an investee,” according to a regulatory filing.

The company made $89 million from those outside stakes in the first quarter, the highest amount in at least three years, data compiled by Bloomberg show. Quarterly results from equity- method investments had ranged from a loss of $17 million to a gain of $18 million since the beginning of 2009, the data show.

Second-quarter operating income will range from a loss of $260 million to a gain of $40 million, the company said. Analysts in a Bloomberg survey were projecting operating income of $184 million. Sales in the current period will be $11.9 billion to $13.3 billion, Amazon said, compared with an estimate of $12.8 billion.

Distribution Centers

Bezos spent about $4.6 billion on Amazon’s warehouses last year, part of a series of investments that sent operating expenses up 44 percent in 2011 and sliced margins by 2.3 percentage points. The company will build 13 more distribution centers in 2012, Chief Financial Officer Thomas Szkutak said on a conference call yesterday.

To bolster profitability, the company has been adding more third-party sellers, which generate higher margins, to its website. Amazon collects a commission, usually about 10 percent, on any item sold by an outside vendor. All of that money goes to the bottom line. Amazon also collects fees if the partner elects to fulfill through its chain of warehouses, according to Mercent Corp., a consulting firm that helps retailers improve online sales.

Amazon is focusing on building out the video offerings available on its website and the Kindle Fire, Szkutak said. Amazon announced the availability of the Amazon Instant Video app for Sony Corp.’s PlayStation 3 earlier this year, the first video-game console that offers the software.

Sales of digital media increased 19 percent to $4.7 billion, Amazon said.

“Underlying user growth trends remain strong,” Douglas Anmuth, an analyst at JPMorgan Chase & Co. (JPM) in New York, wrote in a research note this week. “We project margin to improve in the back half of the year.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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