Amazon profit trounces estimates, sales forecast muted

Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City.
Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City.PHOTO: REUTERS

NEW YORK (REUTERS) - on Thursday (April 25) trounced first-quarter profit estimates on soaring demand for its cloud and advertising services, but a weak forecast renewed concern that the company would spend away part of its windfall on larger investments this year.

Shares were up more than 1 per cent in after-hours trade.

Amazon's first-quarter net income more than doubled to US$3.56 billion (S$4.85 billion), or US$7.09 per share, while analysts were only expecting US$4.72, according to IBES data from Refinitiv.

By contrast, it forecast a second-quarter operating income of up to US$3.6 billion, while analysts were expecting US$4.2 billion, according to FactSet.

The news marks a familiar refrain for the world's largest online retailer. For years, Amazon has made expensive bets on new technology and programs, like its US$13.7 billion purchase of Whole Foods Market in 2017 to become a player in the US grocery business.

Amazon's investments had long meant a low profit margin.

However, its steady, often successful marches into new industries have reaped shareholders rewards, including its founder Jeff Bezos, who had become the richest man in the world.

The lustre of these bets still shined brightly on Thursday.

The company's loyal customer base has drawn merchants to sell and increasingly advertise through its site in exchange for fees, helping Amazon transform from a largely low-margin retail business to a more and more lucrative marketplace.

Revenue from seller services jumped 20 per cent to US$11.1 billion in the first quarter, while ad and other sales surged 34 per cent to US$2.7 billion, the company said.

Meanwhile, Amazon's cloud unit kept up its pace of growth as more enterprises moved data and computing operations to the technology company's servers. Sales for Amazon Web Services rose 41 per cent to US$7.7 billion in the first quarter.

But Amazon expects some of that profit from these ventures to dwindle away.

Amazon is building warehouses around the world to ensure its edge in delivering goods to customers the fastest. It is spending more on video, from live sports to a planned prequel series to The Lord Of The Rings, to draw more people to log on to its website, watch, and while they are there, buy socks.

And the company is delving into even less familiar terrain.

It recently announced investments in self-driving and electric car companies, teasing how it thinks these high-tech, capital-intensive businesses could pay dividends potentially in the form of autonomous deliveries in the long run. Amazon has not described in detail its thinking behind the bets.

Costs are rising at the same time as Amazon has faced uncertainty in India, one of its most important growth markets, following new regulations there affecting foreign investment in the e-commerce sector. And in China, where the company had long struggled to compete with Alibaba Group Holding, Amazon said this month it would close warehouses and its domestic marketplace in July.

One silver lining for investors: Bezos, who many regard as a management guru, settled his closely watched divorce such that he will retain full voting control of his family's stock, sparing Amazon a boardroom battle. However, his fortune, which has been the largest of any married couple in the world, will be divided.

The company forecast net sales of between US$59.5 billion and US$63.5 billion for the second quarter, the midpoint of which was below analysts' average estimate of US$62.37 billion, according to IBES data from Refinitiv.

Net sales in North America, its biggest market, jumped 17 per cent to US$35.81 billion in the quarter.

Amazon Web Services revenue surged 41.4 per cent to US$7.70 billion, but missed the estimate of US$7.72 billion.

Amazon's operating expenses rose 12.6 per cent in the quarter to US$55.28 billion as it invested in electric-car maker Rivian and self-driving car startup Aurora and continued spending on its Prime program, grocery delivery from Whole Foods stores and original video content.

Amazon has also been gaining immensely from its highly profitable ad sales business. The company said revenue from the category and some other items grew 33.7 per cent to US$2.72 billion, but missed estimates of US$2.85 billion.