Amazon Delivers Profits, a $20 Prime Hike, NFL Games
Amazon.com Inc. more than doubled its profit Thursday and predicted strong spring results as the world’s biggest online retailer raised the price for U.S. Prime subscribers, added U.S. football games and touted its cloud services for business.
The results showed the broad strength of the company, which has been expanding far beyond shipping packages, the business that has drawn the ire of U.S. President Donald Trump.
The forecast beat expectations on Wall Street, sending shares up 7 percent to a new record in afterhours trade and adding $8 billion to the net worth of Jeff Bezos, Amazon’s chief executive and largest shareholder.
Seattle-based Amazon is winning business from older, big box rivals by delivering virtually any product to customers at a low cost, and at times faster than it takes to buy goods from a physical store. It is expanding across industries, too, striking a $130 million deal to stream Thursday night games for the U.S. National Football League online and working to ship groceries to doorsteps from Whole Foods stores nationwide.
Sales jumped 43 percent to $51.0 billion in the quarter, topping estimates of $49.8 billion, according to Thomson Reuters.
Prime now $119
Prime, Amazon’s loyalty club that includes fast shipping, video streaming and other benefits, has been key to Amazon’s strategy. Its more than 100 million members globally spend above average on Amazon.
The company announced Thursday it will increase the yearly price of Prime to $119 from $99 for U.S. members this spring.
The fee hike is expected to add a windfall to Amazon’s subscription revenue, already up 60 percent in the first quarter at $3.1 billion.
“We do feel it’s still the best deal in retail,” Brian Olsavsky, Amazon’s chief financial officer, said on a call with analysts. He said the number of items Prime members can get within two days had grown fivefold since the last price increase four years ago.
Advertising and the cloud
Despite the surge in shopping, Olsavsky gave credit for Amazon’s $1.6 billion profit last quarter to two younger businesses: advertising and Amazon Web Services.
Revenue from third-party sellers paying to promote their products on Amazon.com was an unusually large bright spot during the quarter, with sales in the category, which includes some other items, growing 139 percent to $2.03 billion. This included $560 million from an accounting change.
Amazon Web Services (AWS), which handles data and computing for large enterprises in the cloud, won new business and saw its profit margin expand. It posted a 49 percent rise in sales from a year earlier to $5.44 billion, beating estimates.
Amazon remains the biggest in the space by revenue, and its stock trades at a significant premium to cloud-computing rival Microsoft Corp.
Amazon’s shares have also outperformed the S&P 500, rising 30 percent this year as of Thursday’s market close, compared with the S&P’s less than 1 percent decline.
More workers, spending
Notorious for running on a low profit margin, Amazon has still reaped rewards for shareholders as it has bet on new services like voice-controlled computing and has expanded across continents and industries.
Global headcount was up 60 percent from a year earlier at 563,100 full-time and part-time employees, thanks to a hiring spree and an influx of workers from Whole Foods Market.
The company plans to increase its video content spending this year, Amazon’s Olsavsky said, with a prequel to “The Lord of the Rings” in the works. The third quarter will also see extra spending to prepare for the busy holiday season.
Amazon is working with JPMorgan Chase & Co and Berkshire Hathaway Inc to determine how to cut health costs for hundreds of thousands of their employees.
And it is expanding its retail footprint outside the United States, particularly in India. Amazon’s international operating loss grew 29 percent to $622 million in the first quarter.