UPDATE 4-Amazon shares soar on surprise profit, market value tops Wal-Mart’s

24 Jul 2015 | Author: | No comments yet »

Amazon Has Figured Out How to Make the Cloud Pay.

(Reuters) – Amazon.com Inc shares surged more than 17 percent on Thursday as the online retailer posted an unexpected quarterly profit, pushing its market value above that of Wal-Mart Stores Inc , the world’s largest retailer. Shares of the Seattle-based e-commerce giant surged 17 percent after the markets closed, notching a new accomplishment for Amazon: It is the world’s most valuable retailer, at least for now, with a market value higher than Wal-Mart’s.NEW YORK (AP) — Investors helped Amazon celebrate its 20th birthday, pushing the online retailer’s stock up 17 percent in aftermarket trading Thursday after it reported a surprise second-quarter profit.

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. Analysts, who are used to Amazon posting losses as it invests in numerous businesses, expected the company to slip into the red to the tune of 14 cents per share. 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.

Well-known for plowing its earnings back into the company, Amazon has been in the red three of the past five quarters, and Wall Street analysts, according to Reuters, expected another negative result Thursday. Amazon, which turned 20 on July 16, credited the profit to continued strength of its cloud-computing business and strong revenue growth both domestically and abroad. Think of AWS as a turbocharger for Amazon.com to use against e-commerce competitors, including, but not limited to, Walmart, Flipkart, eBay, and even newcomers like Jet.com. 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. The lack of transparency prompted years of speculation about how much money Amazon was making from the service and whether it was operating with the the same razor thin margins as its retail business.

Sales in the US, Amazon’s biggest market, rose 25.5pc compared with the same period last year, to $13.8bn on trong demand for electronics and general merchandise. In hindsight, Amazon’s introduction of AWS — starting with the Elastic Compute Cloud (EC2) beta on August 24, 2006 — looks like a stroke of genius. “It … lets you run on Amazon’s proven computing environment,” Amazon said at the time. 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 fuelled 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. In a call with analysts, new Amazon CFO Brian Olsavsky said the company would continue to look for ways to keep costs in check while at the same time investing in “things that we think are big and important.” Amazon got a boost in revenue from Amazon Web Services, a suite of products and services offered to businesses by way of the “cloud,” or remote servers that enable users to access applications on any machine with an Internet connection. Microsoft expects to make $8 billion this year off its cloud division, but that estimate includes cloud business offerings like Office 365 and Dynamics in addition to its Azure service, which competes more directly with AWS.

Revenue rose 19.9 percent to $23.19 billion. “It looks like they beat across every major revenue line,” said Colin Sebastian, analyst with Robert W. The company won’t say how many Prime members it has, but it’s estimated to be as many as 40 million, and Prime members typically spend more than other shoppers.

The retailing giant said its global shopping day was bigger than Black Friday – the post-Thanksgiving US extravaganza that has arrived in the UK in recent years. 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.

Last month Facebook became more highly valued than the world’s largest retailer, knocking it out of the top 10 list of the highest-valued companies in the Standard & Poor’s 500 index.

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