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Amazon surprise profit of $79m spurred shares as much as 13% higher

Catapulting CEO Jeff Bezos into the spot as the third-richest person in America.
Amazon.com’s stock soared after third- quarter sales topped analysts’ estimates thanks to the company’s fast-growing cloud-computing division, a boost from its July Prime Day promotion and a watchful eye on spending.

A surprise profit of $79 million, or 17 cents a share, spurred shares as much as 13% higher in extended trading on Thursday, catapulting Chief Executive Officer Jeff Bezos into the spot as the third-richest person in America. The earnings compared with a loss of $437 million, or 95 cents, a year earlier, signaling an abrupt change from the tumble Amazon took after poor sales of its Fire smartphone.

“Jeff Bezos whiffed with the Fire phone last year and he realized he has to keep Wall Street happy because he pays people with stock,” said Michael Pachter, an analyst at Wedbush Securities Inc. “The upside here is coming from less spending on stupid products like the Fire phone.”

While investors rejoiced that revenue rose faster in the quarter than expenses, Amazon emphasized it will continue to make devices that people can use to watch videos, read e-books and shop online. Bezos trumpeted the 7-inch Fire tablet for the holiday season.

Six-Pack

“For the first time, we’re recommending you bring home a six-pack for the whole family,” he said in a statement. “At a price of $50 for one or $250 for a six-pack, Fire sets a new bar for what customers should expect from a low-cost tablet.”

Chief Financial Officer Brian Olsavsky said the company would manufacturer “millions more” Fire tablets than initially planned.

Investors have regained confidence in Amazon as the world’s biggest Internet commerce company expanded its core business and the cloud-computing unit without spending a lot to develop new gadgets. The Seattle-based company’s shares have gained 82% this year.

Revenue in the quarter gained 23% to $25.4 billion, compared with analysts’ projections of$24.9 billion. Operating expenses increased 18%, the company said.

Amazon shows no signs of a consumer spending slowdown hurting its business, differentiating it from retail competitors. The Prime Day sales event added 2% to the company’s global revenue growth rate, Olsavsky said in a conference call with reporters. “We will continue it in future years and make it bigger and better,” he said.

As Amazon has been transformed from an online bookstore into a vast conglomerate, its video-streaming service competes with Netflix Inc. and its third-party logistics business rivals United Parcel Service. Meanwhile its core e-commerce business challenges brick-and-mortar chains such as Wal-Mart Stores and Target as well as online marketplace EBay.

Web Services

The cloud division, called Amazon Web Services, has piqued investor interest as a more profitable segment than the low- margin e-commerce operation. The cloud business competes against major information technology companies such as Google Inc. and Microsoft Corp. to rent data storage space and computing power that have become the building blocks of Internet-based systems.

AWS generated third-quarter revenue of $2.09 billion, an increase of 78% from a year earlier, the company said, topping analysts’ estimated sales of $2 billion.

The company projected fourth-quarter revenue of $33.5 billion to $36.8 billion, compared with analysts’ average estimates of $35.1 billion, according to data compiled by Bloomberg. Total e-commerce sales in the U.S. are expected to hit $79.4 billion in November and December, up 14% from a year earlier, according to EMarketer, showing that spending continues to shift online from brick-and-mortar retailers.

©2015 Bloomberg News

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