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 Combined with a bullish forecast for the third quarter, upbeat
comments from company executives on Amazon's Prime delivery service
and rapid growth in its cloud computing service, Amazon delivered
the kind of results Wall Street is looking for.
Seattle-based Amazon, which last reported a profit in the 2014
fourth quarter, has often faced worries by investors that its heavy
spending on new ventures will not actually pay off.
"My quick take is that management has a lot of discretion over
spending and appears to understand that investors prefer profits to
losses," said Michael Pachter, analyst at Wedbush Securities. "If
they keep delivering profits, the stock should work."
Amazon's shares had languished for much of last year as the company
failed to deliver sustainable profits. The shares traded as low as
$284 last October, virtually half of the price reached in
after-hours trade on Thursday.
Prime, which for $99 a year also provides exclusive access to
certain movies, music and Kindle books, is getting new subscribers
at rates "higher than we've ever seen," Chief Financial Officer
Brian Olsavsky told analysts on a conference call.
Membership was growing faster outside the United States than inside,
helped in part by a recent one-day sale event called "Prime Day,"
Amazon said. It declined to disclose membership figures.
"Growth has been fueled in large part by Prime growth and also
(item) selection growth so it's been a huge driver both in North
America and international segments," Olsavsky said in a separate
call for reporters.
For the second quarter, Amazon reported a profit of $92 million, or
19 cents per share, compared with a loss of $126 million, or 27
cents per share, a year earlier. Revenue rose 19.9 percent to $23.19
billion.
Analysts on average had expected a loss of 14 cents per share on
revenue of $22.39 billion.
"It looks like they beat across every major revenue line," said
Colin Sebastian, analyst with Robert W. Baird & Co. "That, along
with the surprise profit beat, is icing on the cake, so to speak."
Sales in North America, the company's biggest market, rose 25.5
percent to $13.8 billion from a year earlier, helped by strong
demand for electronics and general merchandise.
Revenue from the cloud computing division, Amazon Web Services,
soared 81.5 percent to $1.82 billion, accounting for nearly 8
percent of the quarter's revenue.
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Amazon considers Amazon Web Services a core engine of growth, along
with Amazon Prime and Marketplace, where the company acts as a
middleman for third-party vendors. Wall Street views AWS as an
important source of stable profits.
Shares of Amazon, which began as an online bookstore 20 years ago,
jumped to $566.02 in after-hours trade. If the stock maintains this
level on Friday, Amazon's market value would well exceed Wal-Mart's
$233.52 billion.
Amazon declined to comment on rising competition from new online
retailers like Jet.com, which offers annual memberships at half the
price of Amazon Prime and promises savings on 10 million products.
Jet, which has so far raised $220 million from top venture capital
firms, will list its discounted prices next to Amazon's lowest price
for the same products.
"We've been in competition with some of the biggest names in
retail," Olsavsky said, "so we're used to competition but we're
focused on the customer."
The company forecast net sales would grow 13 percent to 24 percent,
to a range of $23.3 billion to $25.5 billion, in the third quarter,
well above analysts' consensus estimate of $23.89 billion, according
to Thomson Reuters I/B/E/S.
Amazon estimated third-quarter operating results ranging from a loss
of $480 million to income of $70 million.
(Reporting by Anya George Tharakan in Bengaluru and Mari Saito in
San Francisco; Editing by Stephen R. Trousdale, Richard Chang and
Leslie Adler)
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