Amazon.com Inc. posted strong growth in the first quarter of 2016, fueled by its cloud services and strong North American e-commerce sales driven in part by its Prime membership.
Incurring its biggest-ever net income, the company said its sales in the first three months of the year rose 28 percent to $29.1 billion – including a 64 percent climb at its cloud computing business, Amazon Web Services. First-quarter net income was $513 million or $1.07 per share.
Amid declining more than 10 percent this year, Amazon stocks soared hours after the statement was released on April 28, reaching up to $682.80 in extended trading.
The news is seen to help thwart any concerns on profitability, as investors are said to be watching how founder and CEO Jeff Bezos is balancing “ambitious spending” with the aim for consistent profits. Operating expenses increased by one-fourth as Amazon continues to invest in expanding its U.S. warehouse network, as well as creating new AWS-powering data centers.
“This allays investor fears that Amazon has embarked on another aggressive investment cycle tied to logistics,” analyst Victor Anthony of Axiom Capital Management said in a Bloomberg report.
Moreover, AWS exhibited impressive double-digit growth amid competition from Google and Microsoft, earning $604 million in profit on $2.57 billion in sales. This translated to a 64 percent year-over-year growth.
Based on this performance the cloud computing unit could rival the size of stand-alone firms such as PayPal, and even post double the yearly revenue of Yahoo. Analyst Charlie O’Shea of Moody’s pinpointed margin as the unit’s more impressive metric.
“[It] roughly double to 23.5 percent, generating over $600 million, or roughly 60 percent, of Amazon’s total operating income,” he explained in a USA Today report.
Another major growth driver in Amazon’s North American sales – accounting for 58 percent of its total sales – is the Prime membership, where customers pay $99 a year for free two-day delivery, music and video streaming and other perks. In a continued push for the service, Bezos said in his annual letter to investors that he wants Prime to be such a massive deal that it would be “irresponsible” to forego membership.
Content emerges as one of Amazon’s major persuasions pushing Prime forward, according to its Chief Financial Officer Brian Olsavsky during the earnings call. He said they will be raising their spending in that area in the upcoming quarters.
Prime is also enjoying overseas success as the company expands in territories like Europe and Japan. Olsavsky added that the strategy – which ensures customers are locked in and converted from occasional buyers to loyalists – is no longer just a North American model.
Amazon continues to bank on its fast delivery options, recently offering free two-hour delivery in big U.S. cities. It is also beefing up its restaurant delivery, recently introducing free one-hour delivery from local food establishments in 33 zip codes across San Francisco.
The company, which historically did not focus much on profit, but has posted data on it for four succeeding quarters, is now projecting second-quarter revenue of $28 billion to $30.5 billion.
