Amazon sales jump but spending curbs profit

By @ibtimes on

Amazon.com on Tuesday posted quarterly revenue growth that let investors mostly shrug off razor-thin margins and disappointing earnings, and it forecast revenue that would beat Wall Street estimates for the current quarter.

The forecast helped support the online retailer's shares around their regular-session close, even though earnings fell 33 percent as its investment in new businesses ate into earnings and the company cited uncertainty over consumer spending in the current quarter.

The concern that people had, that they were going to spend more than the Street was expecting, happened, said Ken Sena, analyst at Evercore Partners. But when you look at the kind of growth acceleration they are showing on the top line and surpassing pretty much all Street expectations, I think that clearly what they are doing makes sense.

The company has been willing to sacrifice some profitability to win customers and build its new businesses. It has invested heavily in areas such as cloud computing -- which allows companies to store data on its servers -- to take on its rivals Google Inc and Apple Inc.

Amazon is also laying out money to open new distribution centers and cement its lead as the world's largest online retailer.

For the company's first quarter, which ended March 31, revenue was $9.857 billion, above the average estimate of $9.57 billion and 38.2 percent above a year earlier.

Net income in the first quarter was $201 million, or 44 cents per share -- down from $299 million, or 66 cents per share, a year earlier. That was far below the 61 cents expected by Wall Street, according to Thomson Reuters I/B/E/S.

The company posted an 18.2 percent dip in operating profit for the quarter, reflecting the costs of competing in the highly promotional retail environment, with beefed-up investment in its cloud computing services.

Operating margin, which Amazon has said is the best gauge of its profitability given the variety of items it sells, came to 3.3 percent, in the middle of the range it had forecast.

It's not a revenue problem, it's a profit problem, said BGC Partners analyst Colin Gillis. But at the end of the day, you've got to remember that these guys are a discount retailer.

Amazon expects that its investing to win market share will pay off. It forecast current-quarter revenue of $8.85 billion to $9.65 billion, above Wall Street expectations of $8.7 billion, according to Thomson Reuters I/B/E/S.

Amazon said it expects operating profit in the current quarter of $95 million to $245 million. In the same quarter last year, Amazon had operating profit of $207 million.

Amazon shares were off 0.4 percent at $181.50 in up-and-down trading following the earnings report, after slipping 1.7 percent, or $3.12, to end at $182.30 in regular-session Nasdaq trading.

(Graphic: Amazon.com: income and sales growth http://r.reuters.com/pet29r)

(Additional reporting by Nichola Groom in Los Angeles and Jessica Wohl and Brad Dorfman in Chicago; Editing by Gary Hill)

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