AMZN Amazon.com Inc

Retailer hits record net on strong growth, aided by Prime loyalty and cloud services

By Greg Bensinger 

Amazon.com Inc. on Thursday reported in its third consecutive record profit, nearly doubling its prior high-water mark, and its fifth straight quarter in the black.

Amazon's revenue jumped 31% including a 58% gain at its Amazon Web Services cloud computing unit. The company also more than doubled its operating margin, which historically has been razor thin, and issued a cheery outlook for the coming quarter.

Shares of the company rose another 2% in after-hours trading after finishing up $15.94 at $752.61 in 4 p.m. trading on the Nasdaq Stock Market on Thursday.

"The accelerating revenue growth was a pleasant surprise," said Colin Sebastian, a Robert W. Baird & Co. analyst. "But people may be expecting quarters like this now."

The results show Amazon moving toward investors' long-held hope of consistent profitability after a lengthy period of heavy investments and quarterly losses. The Seattle company hasn't had five consecutive profitable quarters since 2012 as it pumped much of its revenue gains back into product development and operations, including massive warehouses to speed products to customers.

Chief Financial Officer Brian Olsavsky said Amazon isn't changing its investment philosophy, noting the company plans to add 18 new warehouses in the current quarter compared with six a year earlier. "We're very happy with the operational performance of the business," he said during a call with reporters.

Amazon's operating profit margin, a closely watched metric, was 4.2%. That is more than double the 2% year-earlier figure and a sign that the company is controlling costs.

Overall, Amazon posted a second-quarter $857 million profit, or $1.78 a share, compared with $92 million, or 19 cents a share, a year earlier. Sales rose to $30.4 billion from $23.19 billion. Analysts were expecting $1.11 a share on revenue of between $28 billion and $30.5 billion.

A big boost to results came from its Amazon Web Services cloud computing division, which sells access to computing power over the internet. AWS revenue in the quarter jumped to $2.89 billion, from $1.82 billion a year earlier. The unit appears on track to exceed Amazon Chief Executive Jeff Bezos's goal of reaching $10 billion in sales this year.

That business is central to many investors' faith in the company as it has become the go-to provider for startups, many government agencies and large corporations. Amazon has pushed to gain acceptance among large banks and technology firms, particularly as Alphabet Inc. and Microsoft Corp. ramp up rival cloud computing services.

In retailing, Amazon's power is spilling over the confines of the online world. the company overtook Wal-Mart Stores Inc. by market value a year ago and is pushing into brick-and-mortar outlets with a bookstore in its hometown of Seattle and several others planned across the U.S. The retailer is a major focal point for brands and manufacturers betting that consumers are willing to buy more staples online.

The $99-per-year Prime unlimited shipping membership has proven a big driver of online sales. Amazon has beefed up the program with exclusive streaming television shows and music as well as a one-hour delivery service for some goods in a number of cities. It said this month it will offer Prime for the first time to customers in India, where it has pledged $5 billion in investment since 2014.

It also rolled out month-by-month subscription offerings for both Prime and its streaming video service, which Mr. Olsavsky said had been performing well, without providing specifics. Amazon is expected to introduce a monthly unlimited streaming music service in coming months.

Amazon has been casting about to find new ways to contain shipping costs that have accelerated more quickly than sales in recent quarters. That expense jumped 42% jump in this year's first three months and 37% in 2015's holiday quarter. For the second quarter, Amazon reported a 44% rise in shipping expenses to $3.36 billion.

The company has taken over more of its own delivery, including the expensive final leg of a package's journey, known as the last mile. It is leasing 40 planes to carry goods and bought branded truck trailers.

As a result of its warehouse expansion, in particular, Amazon boosted its employment to 268,900, up 9.6% compared with the first quarter.

It forecast third quarter sales of between $31 billion and $33.5 billion, compared with analysts' views of $31.63 billion.

Write to Greg Bensinger at greg.bensinger@wsj.com

(END) Dow Jones Newswires

July 29, 2016 02:48 ET (06:48 GMT)

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