Amazon Quarterly Profits Double; Raises Price for Prime
Amazon more than doubled its profit in the 1st 3 months of 2018, thanks to its North American retail, cloud-computing, and advertising. In addition, the company raised the price for US Prime subscribers.
The retail giant’s profit beat Wall Street’s estimates by a massive $2 a share. Its operating income came in much better than it had forecast at the end of last quarter.
The news sent Amazon shares up 7% to $1,624.61 to a new record high in after-hours trade. It added $8 billion to the net worth of Chief Executive and largest shareholder Jeff Bezos.
Furthermore, Amazon’s net profit rose to $1.6 billion from $724 million in the same period last year.
“This was unusually strong quarter for Amazon, where results came in both better for revenue and profits across the board,” said Mark Mahaney, analyst at RBC Capital Markets.
The company’s advertising and cloud business boosted much of its growth. It also contributed to its 2nd straight quarter of billion-dollar profits. Overall sales climbed 43% to $51 billion, higher from $35.7 billion the previous year.
Revenue from 3rd-party sellers paying to promote their products on the website was an unusually high during the quarter. It grew 139% to $2.03 billion, including $560 million from an accounting change.
“Advertising is an important and very profitable bucket of revenue for Amazon and is also growing at a fast rate,” said Tom Forte, analyst at D.A. Davidson. “They are just getting started here.”
Moreover, Amazon Web Services (AWS) handles data and computing for large enterprises in the cloud. It hosts companies including Netflix, Airbnb, and the CIA.
The AWS segment had a 26% operating margin the most recent quarter, compared to 3.8% for the overall company
AWS sales posted a 49% rise in sales from a year earlier to $5.44 billion, beating estimates.
“[Amazon Web Services] had the unusual advantage of a 7-year head start before facing like-minded competition, and the team has never slowed down,” Bezos said in a statement. “That’s why you’re seeing this remarkable acceleration in AWS growth, now for 2 quarters in a row.”
The company’s success has allowed it to announce a big investment in Amazon Studios. An in-house TV production firm that produces The Grand Tour, hosted by Jeremy Clarkson, and the dystopian series The Man in the High Castle.
Additionally, the company expects operating profit this quarter between $1.1 billion and $1.9 billion, higher from $628 million a year earlier. On the other hand, analysts were expecting $1.01 billion, according to FactSet.
Amazon Raises the Annual Cost of Prime to $119
The company announced Thursday it will raise the yearly price of Prime to $119 from $99 for US members this spring. Members who renew their Prime memberships will have to pay the new rate beginning June 16.
Further, the company said it has 100 million Prime members, the 1st time it has released the number.
“The Prime program continues to drive great strength to our top line,” Brian Olsavsky, Chief Financial Officer at Amazon, said on a call.
The hike is expected to add a windfall to Amazon’s subscription revenue, already up 60% in the 1st quarter at $3.1 billion.
“We do feel it’s still the best deal in retail,” said Olsavsky. The numbers of items Prime members can get within 2 days had grown fivefold since the last price increase 4 years ago, he said.
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