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 Amazon's international unit, which accounts for 40 percent of sales,
continued to be a drag as sales growth slowed to 18 percent during
the quarter. Global unit sales, a closely watched measure of how
many items Amazon has sold, also decelerated, rising only 23
percent.
The company is investing heavily in new markets abroad, particularly
China, where it faces tough competition with Chinese e-commerce
company Alibaba.
"A lot of the things that we've done — making sure that we have the
right pricing in place on behalf of the customers, making sure that
our service levels are where we need them to be — those are the
things we continue to work on in China," Chief Financial Officer Tom
Szkutak said during a conference call.
"Is it a large investment? Yes, it is. And that investment has
increased over the past several years."
Szkutak added that Amazon was "encouraged" by the weekly growth in
Prime users, even after the company increased the price of the
service by $20 last month.
Shares of Amazon, which is also aggressively expanding its lineup of
devices and computing services to sustain its growth pace, were
little changed in after-hours trading.
The Seattle-based company's first-quarter revenue rose 23 percent to
$19.74 billion, boosted by North American sales. This bested the
average Wall Street estimate of $19.4 billion, according to Thomson
Reuters I/B/E/S. Amazon reported earnings per share of 23 cents, in
line with expectations.
Operating margins were predictably razor-thin at around 1 percent.
Amazon is spending big on a range of projects, including developing
its own original shows and video games, as its core retail business
comes under pressure.
"They continue to struggle with the level of profitability they
should be seeing, but how can you do better when you're 'investing'
for the future?" Forrester Research analyst Sucharita Mulpuru said
in an email.
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The company is also moving more forcefully into hardware with the
debut of its Fire TV video streaming box, as well as a long-rumored
smartphone.
First-quarter operating expenses shot up by 23 percent. Amazon's
fulfillment costs rose 29 pct, while its technology and content
spending was up 44 percent.
But Amazon faces a few near-term hurdles, including new laws in
several states forcing the company to collect sales taxes. A recent
study showed Amazon sales fell 10 percent in such states, and
analysts said this was one factor that pinched Amazon's unit sales
growth over the last two years.
The e-commerce company also faces heightened competition abroad from
rivals such as Alibaba, which is laying the groundwork for what
could be the largest initial public offering for a technology
company.
The first-quarter report comes as Amazon tries to build the case for
its Prime service after hiking its annual fee to $99 from $79 last
month. Prime users get unlimited two-day shipping, access to
streaming video and other perks.
This week alone, Amazon unveiled two initiatives to stem defections,
including a deal to stream older shows from HBO, the premium cable
channel owned by Time Warner Inc.
(Reporting by Deepa Seetharaman; editing by Bernard Orr and Andre Grenon)
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