New York: Amazon.com's quarterly results beat Wall Street's most bullish expectations as heavy spending by the world's largest internet retailer began to pay off through sales of more digital products on its new Kindle Fire tablet.
Amazon shares surged almost 15 per cent, increasing the company's market value by more than $10 billion (Dh36 billion) and boosting the stake of Chief Executive Jeff Bezos (above) by almost $2.5 billion. Analysts cheered first-quarter earnings and revenue which comfortably exceeded their forecasts.
"It's been a couple of years since Amazon beat expectations on both the top and the bottom line," said Colin Sebastian, an analyst at Robert W. Baird & Co. "That's reminiscent of the Amazon from three or four years ago."
Main areas
Amazon is spending in three main areas: fulfillment centres to support online retail; video content and other media businesses; and infrastructure for its cloud computing service. Among its latest ventures is the Kindle Fire, the tablet that competes with Apple Inc's iPad, that some analysts say the company is selling at breakeven or a small loss.
The Fire is important because it helps Amazon handle the shift from physical media products, like books, DVDs, video games and CDs, to digital versions of such content.
During the first quarter, nine out of 10 of the top selling products on Amazon.com were digital products, including Kindle e-books, movies, music and apps, the company noted. Amazon Chief Financial Officer Tom Szkutak told analysts on a conference call that the company was pleased with growth in sales of the digital content that Kindle e-readers and the Fire tablet are designed to accelerate. "One of the concerns with the shift from physical to digital has been whether Amazon will be able to compete," said Ben Schachter, an analyst at Macquarie. "They've done well in e-books, but now it looks like they're also doing well in other areas like video."
North America Media revenue, which includes books, DVDs and music, came in at $2.2 billion in the first quarter, up 17 per cent from a year earlier. During the fourth quarter of 2011, this segment grew 8 per cent.
Amazon's Szkutak said higher digital content purchases by Kindle customers helped North America media sales growth re-accelerate in the first quarter. Amazon's heavy spending has pressured profit margins in recent quarters, hitting the company's shares. But in the first quarter, gross margins rose by about 120 basis points to roughly 24 per cent, Macquarie's Schachter estimated.
"The biggest concern has been margins. A lot of investors have been looking for the company to demonstrate that it could get leverage on all of these investments it's been making," said Caris & Co analyst Scott Tilghman.
