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Amazon shares soar on surprise profit, market value bigger than that of world's largest retailer Wal-Mart

PUBLISHED : Friday, 24 July, 2015, 11:35am
UPDATED : Friday, 24 July, 2015, 11:35am

Amazon shares surged more than 17 per cent on Thursday as the online retailer posted an unexpected quarterly profit, pushing its market value above that of Wal-Mart Stores, the world’s largest retailer.

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.

Seattle-based Amazon, which last reported a profit in the last year 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. The shares traded as low as USUS284 last October, virtually half of the price reached in after-hours trade on Thursday.

Prime, which for USUS99 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.

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.

For the second quarter, Amazon reported a profit of UsUS92 million, or 19 cents per share, compared with a loss of USUS126 million, or 27 cents per share, a year earlier. Revenue rose 19.9 per cent to USUS23.19 billion.

Analysts on average had expected a loss of 14 cents per share on revenue of USUS22.39 billion.

“It looks like they beat across every major revenue line,” said Colin Sebastian, analyst with Robert W. Baird & Co. “That, along with the surprise profit beat, is icing on the cake, so to speak.”

Sales in North America, the company’s biggest market, rose 25.5 per cent to USUS13.8 billion from a year earlier, helped by strong demand for electronics and general merchandise.

Revenue from the cloud computing division, Amazon Web Services, soared 81.5 per cent to USUS1.82 billion, accounting for nearly 8 per cent of the quarter’s revenue.

Amazon considers Amazon Web Services a core engine of growth, along with Amazon Prime and Marketplace, where the company acts as a middleman for third-party vendors. Wall Street views AWS as an important source of stable profits.

Shares of Amazon, which began as an online bookstore 20 years ago, jumped to USUS566.02 in after-hours trade. If the stock maintains this level on Friday, Amazon’s market value would well exceed Wal-Mart’s USUS233.52 billion.

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.

Jet, which has so far raised US220 million from top venture capital firms, will list its discounted prices next to Amazon’s lowest price for the same products.

“We’ve been in competition with some of the biggest names in retail,” Olsavsky said, “so we’re used to competition but we’re focused on the customer.”

The company forecast net sales would grow 13 per cent to 24 per cent, to a range of US23.3 billion to US25.5 billion, in the third quarter, well above analysts’ consensus estimate of US23.89 billion, according to Thomson Reuters I/B/E/S.

Amazon estimated third-quarter operating results ranging from a loss of US480 million to income of US70 million.