Amazon Sales Exceed Estimates as Web Services Drive Growth

Updated on Inc.’s investments in speedy delivery services, data centers and original video programming paid off with more customers, helping the world’s biggest online retailer report first-quarter sales that beat analysts’ estimates.

Sales jumped 15 percent to $22.7 billion, the company said Thursday in a statement. Analysts on average projected $22.4 billion, according to data compiled by Bloomberg. The company, also the largest seller of cloud-computing services, broke out results from its Amazon Web Services unit for the first time, saying revenue rose 49 percent to $1.57 billion.

Chief Executive Officer Jeff Bezos said he will continue to pump money into new warehouses and data centers, and add media content and services for Amazon Prime members, who pay $99 a year for delivery discounts and online streaming of music, movies and TV shows. Free trials for music and movies help attract new Prime subscribers, who then shop more with the e-tailer, Tom Szkutak, Amazon’s chief financial officer, told investors on an earnings call.

“It’s a great platform to feed,” he said.

Other recent additions by Amazon include a marketplace for home-improvement professionals and a hotel-booking site. The goal is to convert more of the company’s 278 million active shoppers into Prime subscribers, who number in the tens of millions.

The shares rose 6.5 percent in extended trading, after closing at $389.99 in New York. The stock has gained 26 percent this year.

‘Impressive’ Results

“For a company of this size, for them to continue to generate this kind of revenue growth is nothing short of impressive,” said Robert Drbul, an analyst at Nomura Securities International Inc., who recommends buying the stock. “When you think of other companies in retail of this magnitude, it’s a big deal.”

For the first quarter, operating expenses totaled $22.5 billion, up 15 percent from a year ago and just shy of the amount the company brought in as revenue. Amazon said its first-quarter net loss was $57 million, or 12 cents a share, matching estimates. A year earlier, net income was $108 million, or 23 cents.

Seattle-based Amazon forecast second-quarter sales of $20.6 billion to $22.8 billion, in line with analysts’ average projection of $22.1 billion. Operating results will range from a loss of $500 million to a profit of $50 million. Analysts were predicting operating profit of $9.16 million.

Web Services

The Amazon Web Services division, which provides data storage and computing power to other businesses, helps Amazon benefit from growth in traffic to the websites of other companies, including Pinterest Inc. and Netflix Inc. The unit generated first-quarter profit of $265 million, helping to make up for losses in other parts of the company’s business.

“People should be positive on this,” said Michael Pachter, an analyst at Wedbush Securities in Los Angeles. “They’re making a very healthy margin with AWS and they should get a higher margin as they continue to grow.”

Amazon is primarily known for selling goods directly to consumers. Providing warehouse space and packaging to other online retailers and selling computing services helps Amazon convert competitors into clients. More than 2 million merchants sell goods through, sharing a cut of each sale in exchange for access to Amazon’s active shoppers.

The solid first-quarter growth follows a profitable fourth quarter, which helped blunt a decline in investor confidence in Bezos’s investment spree that sent the stock down by almost a fourth last year. His spending made 2014 the company’s first money-losing year in more than a decade.

Prime Members

Amazon expanded its one-hour delivery of certain products, which is now available in six cities, including Manhattan, Dallas and Miami. It also unveiled the Amazon Dash Button, which lets customers order delivery of laundry detergent or macaroni and cheese with one touch, and announced new features for its $199 interactive Echo speaker that makes it a voice-activated light switch. Some of these products and services are available only to members of Amazon Prime.

Macquarie Research analyst Ben Schachter estimates Amazon has at least 35 million Prime members and that approximately 50 percent of U.S. households will have a membership by 2020.

“This has major implications for both Amazon and key retail competitors,” Schachter wrote in a report on Tuesday.

International sales dropped 1.8 percent to $7.75 billion in the first quarter. Sucharita Mulpuru, analyst at Forrester Research Inc., said that shows weakness in the U.K., Germany and Japan, where Amazon generates most of its overseas sales.

“The only really bad news was international,” she said. “Lots of other companies have struggled with international growth.”


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