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By
Reuters API
Published
Feb 2, 2018
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Amazon posts largest profit in its history on sales, tax boost

By
Reuters API
Published
Feb 2, 2018

Amazon.com Inc on Thursday said its sales surged over the winter holiday season and profit topped expectations, as the online retailer drew millions of new customers to its Prime fast-shipping club and as changes to U.S. tax law added to its bottom line.


Reuters


Shares rose more than 5.6 percent in extended trading, after previously closing down 4 percent on the Nasdaq.

Seattle-based Amazon is using fast shipping, television shows exclusive to its website and forays into new technology, such as its voice-controlled Alexa devices, to win and keep high-spending Prime members. Its $13.7 billion (9.61 billion pounds) acquisition of Whole Foods Market last year is helping it capture shoppers' grocery sales, too.

"Our 2017 projections for Alexa were very optimistic, and we far exceeded them. We don’t see positive surprises of this magnitude very often — expect us to double down," said Jeff Bezos, Amazon's founder and chief executive, in a statement.

In the fourth quarter ended Dec. 31, the world's largest online retailer said net income more than doubled to $1.86 billion, or $3.75 per share, thanks in part to a $789 million benefit from the U.S. Republican tax bill passed in December. Analysts on average were expecting just $1.85 per share, according to Thomson Reuters I/B/E/S.

As expected, the season running from before the U.S. Thanksgiving holiday through New Years was Amazon's biggest-ever by revenue. Sales rose 38 percent to $60.5 billion in the quarter, also beating expectations.

The company's fast delivery, like its two-hour Prime Now service, has helped win over holiday shoppers eager to avoid the crowds of big box retailers. Prime saw more than 4 million sign-ups in one week alone last quarter, and revenue from subscription fees grew 49 percent to $3.2 billion, Amazon said.

That figure is expected to rise this quarter in part because the company recently raised the fee for month-to-month Prime plans, affecting some 30 percent of subscribers, according to analysts at Cowen & Co. Some 60 million, or close to half of all U.S. households, are estimated to have Prime subscriptions.

And Amazon Web Services (AWS), which handles data and computing for large enterprises, came in ahead of analysts' estimates as well. It posted a 45 percent rise in sales to $5.1 billion.

HEAVY SPENDING

Amazon's stock has risen almost 50 percent since the start of the fourth quarter, compared with the S&P's 12 percent rise.

Its shares trade at a premium to many peers. The stock's price-to-earnings ratio is nearly 12 times that of cloud-computing rival Microsoft Corp, for instance.

Amazon said it expects operating profit this quarter of between $300 million and $1 billion. Analysts were expecting $1.5 billion, according to analytics firm FactSet Street Account.

The company has become notorious for running on a low profit margin. Yet its big bets on new services and entry into new industries have reaped shareholders rewards over the past decade, including its founder Bezos, now the richest man in the world.

Amazon continues to invest in a wide array of areas: warehouses for faster shipping, data centers for AWS, and hiring new employees. Earlier this week, it announced a partnership with JPMorgan Chase & Co and Berkshire Hathaway Inc to determine how to cut health costs for hundreds of thousands of their employees.

The company has previously said it plans to spend more on video content this year as well, with a prequel television series to "The Lord of the Rings" in the works. Analysts estimate Amazon spent $4.5 billion or more in 2017.

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