Amazon’s streak of Fire ignites shares
SAN FRANCISCO, April 27 — Amazon.com Inc’s quarterly earnings beat Wall Street’s most bullish expectations as the world’s largest Internet retailer brought costs under control and saw early success selling more digital products through its new Kindle Fire tablet, sending its shares up almost 15 per cent.
Investors cheered first-quarter earnings that came in several times above average forecasts, saying the Internet giant, which has been spending aggressively on expansion, is beginning to rein in expenses.
Amazon is spending in three main areas: fulfilment 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.
Executives told analysts on a conference call they were pleased with growth in sales of the digital content that the Kindle and Kindle Fire are designed to accelerate.
Investors have worried about how growth in the volume of goods sold through Amazon was waning. But analysts said the most recent quarter showed better-than-expected strength in the sales of content from media to games, suggesting Amazon’s gradual transition toward digital goods was gaining momentum. “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.
The situation for Amazon now resembled “what we saw back in the 2004 to 2006 time frame when the company was making a lot of investments and margins got squeezed. Then in the years following, margins expanded and revenue accelerated. It looks like the company is in that position right now.”
Shares in the company leapt to US$225 (RM675) in extended trading, further swelling the company’s already lofty valuation of more than 70 times earnings.
By the numbers
In comparison, the 12-month forward price-earnings ratio for the S&P 500 stands at about 12, while Apple is trading at 13 times forward earnings.
Amazon reported net income fell to US$130 million or 28 cents per diluted share in the first quarter, versus US$201 million or 44 cents a year ago. But that was far above the average Wall Street forecast for seven cents a share.
First-quarter revenue of US$13.18 billion, up 34 per cent from a year earlier, was ahead of Wall Street estimates for US$12.9 billion. Operating income was US$192 million, compared with US$322 million a year earlier.
“This looks like a quarter that has something for everyone, growth and margins to satisfy investors. This was a perfect balance. It looks to me there was a follow-through for the Kindle and Kindle Fire in the re-acceleration of growth in media,” said Stifel Nicolaus analyst Jordan Rohan.
Amazon shares rose to US$225 in after-hours trading from a close of US$195.99.
“We were expecting 15 cents EPS ... and we were probably the high end of the Street of where the margins were,” said Evercore Partners analyst Ken Sena.
“You are starting from a very low point: modest improvement on a percentage basis. It looks pretty good. I think the margins have a long way to go, but I think at least to see them moving in the right direction is an encouraging sign.” — Reuters