By Greg Bensinger
Amazon.com Inc., the profit engine?
The Seattle online retailer created an investor frenzy Thursday
by showing a narrow profit, a result of more conservative spending
and the continued growth of its cloud-computing service.
Its shares surged by more than 17% to over $566 in after-hours
trading, pushing its market value well past that of Wal-Mart Stores
Inc., to about $264 billion.
The company's $92 million profit in the second quarter, on sales
of $23.18 billion, stands as a reminder of the typically modest
income expectations for the company, which for years has operated
at a spitting distance from break-even. Analysts had forecast a
loss this time around and a more modest sales gain than the 19.9%
Amazon posted.
Amazon is often knocked for its big losses, but the company has
now eked out a profit in eight of the past 14 quarters since 2012.
The black ink will once again raise questions as to whether this is
the new normal.
While Amazon has long plowed nearly every dollar it takes in
back into product development, services rollouts and warehouse
construction, it appears to be taking a more conservative turn.
Amazon is taking over some package delivery from the largest
carriers and rejiggered its Lab126 hardware development unit after
the flameout of its Fire smartphone last year.
In the latest quarter its operating expenses rose 17.4% compared
with revenue growth of 19.9%, the widest gap in more than three
years.
"We had a very good cost quarter," said Brian Olsavsky, the
recently promoted financial chief, in a call with reporters. "We've
talked the last few quarters about putting even more effort into
fixed and variable productivity."
Mr. Olsavsky also touted Amazon's use of robotics in its
warehouses as a way to lower costs. "We're using software and
algorithms to make decisions rather than people which we think is
more efficient and scales better," he said.
Operating costs, which typically track closely with sales gains,
rose to $22.7 billion from $19.4 billion. Last year, Amazon turned
in a quarter with a loss of $126 million and, in typical fashion,
operating costs that were only about $5 million less than
sales.
Amazon Web Services, which provides cloud-computing services to
other companies, lifted sales 81% to $1.82 billion, faster than the
first-quarter growth of 49%. It also had an operating profit of
$391 million, compared with $77 million last year.
Amazon also may have stemmed concerns about slowing revenue
growth. In each of the past two quarters, the company's
year-over-year growth has fallen well under the 20% threshold seen
in the past few years. The company's focus on expanding its $99
Prime unlimited shipping membership appears to be taking hold.
Those customers, by some estimates, spend as much as double
non-Prime customers.
In the quarter, Amazon said, sales in its core North American
market jumped 25% to $13.8 billion with an operating profit of $703
million, more than twice last year's result. Overseas sales rose
just 3% to $7.6 billion with an operating loss of $19 million.
"There seems to be a focus on operational efficiencies, more
than before, " said Ron Josey, a JMP Securities analyst. "There's
so much that went right this quarter."
Mr. Josey said he was particularly impressed with the sales
growth in the cloud-computing unit and Amazon's North American
sales results. The company is set to see those grow as it recently
announced an expansion into Mexico, where it previously had no
consumer retail site.
Still, Amazon warned there may be more red ink in its future.
Despite the apparent success of its highly touted "Prime Day" sales
event this month, an exclusive day of discounts for Prime members,
Amazon said its third-quarter operating results could wind up
between a loss of $480 million and a profit of $70 million.
Mr. Olsavsky said Amazon expects to offer the Prime Day sale in
the coming years.
Write to Greg Bensinger at greg.bensinger@wsj.com
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