Amazon profit climbs 115% as its sales surge
Amazon.com Inc., the world’s largest online retailer, more than doubled its profit in the first quarter thanks to a lower tax rate, a slower spending pace and brisk sales -- which were boosted by free shipping and other discounts embraced by customers.
Net income climbed 115% to $111 million, or 26 cents a share, from $51 million, or 12 cents, a year earlier. Revenue jumped 32% to $3.02 billion.
The figures topped Wall Street’s targets and sent Amazon shares soaring more than 12% on Tuesday. The stock, which lost 2 cents to $44.75 in regular trading, soared $5.45 to $50.20 after hours.
“The numbers are just outstanding,” said Stifel Nicolaus analyst Scott Devitt, who predicted that Amazon would see profit margins rise as revenue continued to grow.
Shoppers rang up 23.1 million purchases on the website in the first quarter, up 12% from a year earlier, according to Nielsen/NetRatings.
Amazon’s profit picture benefited from growth in its higher-margin Marketplace business, where the company gets a cut of sales made by independent merchants but doesn’t have to bear the cost of carrying the merchandise.
“The Street expected revenue to come in strong,” said Colin Sebastian, an analyst with Lazard Capital Markets. “Where Amazon surprised us was in their higher-than-expected gross margins.”
A lower combined effective tax rate also helped, contributing 4 cents to the per-share earnings. The tax rate dropped to 23% from 47%.
Seattle-based Amazon’s strong quarter helped quell concerns over the company’s spending on projects such as its Web services business and Amazon Unbox, a digital movie download service launched in September.
“The fear of unmitigated spending will abate partially because of these results,” said Jordan Rohan, an analyst with RBC Capital Markets.
Amazon spent $186 million in the quarter on technology and content, up 27% from a year earlier. The gain was modest compared with the 59% increase in the first quarter of 2006.
Asked by analysts during a conference call Tuesday when Amazon would start reaping rewards from its investments, Chief Executive Jeff Bezos counseled patience.
“It takes a long time for new businesses to have an impact on the overall” business, Bezos said. “It’s going to require some patience in order to see that have a financial return.”
Some analysts said aggressive spending was needed to sow seeds of growth as the retailing business matured.
“About two-thirds of Amazon sales are of media products, including books, music and videos,” said Mark Mahaney, a Citigroup analyst, who noted that those products had been “sold almost entirely as physical goods.”
“But there’s a reasoned argument to be made that we will no longer be buying media in a physical format five years from now,” Mahaney said. “In which case, Amazon has to spend a lot on research and development to cross that bridge.”
Looking ahead, Amazon raised its projected revenue for the year to between $13.4 billion and $14 billion, up from the $13 billion to $13.7 billion it had forecast in February.
The company also said it expected operating income for 2007 to be $463 million to $593 million, up from its earlier projection of $355 million to $505 million.
