By Yoree Koh
Amazon.com Inc. notched a best-ever $3.56 billion quarterly
profit as it continued to lean on higher margin businesses and put
a lid on costs.
The e-commerce company's bottom line got a big boost in the
first quarter from its cloud-computing unit and burgeoning
advertising business, helping to offset sluggish growth from the
core online retail business. The profit more than doubled to well
above what analysts were expecting.
Still, sluggish retail sales overseas and flat performance from
Amazon's Whole Foods grocery chain dragged down revenue growth for
a fourth straight quarter. Revenue rose 17% to $59.7 billion.
Growth was 43% in 2018's first quarter, though it was boosted by
the acquisition of Whole Foods.
Amazon's stock rose 0.8% in after-hours trading on Thursday to
$1918.12. The shares are up about 24% this year, helping propel the
company's market value closer to $1 trillion -- a level Amazon
flirted with last year.
After years of plowing nearly every dollar made back into its
business, Amazon has entered a new era of more modest revenue
growth and consistent profits. The company had spent heavily in
prior years to build out its warehouses to meet surging retail
demand and branch into new industries such as cloud computing,
filmmaking and groceries.
Amazon started delivering record profit last year as it eased
spending while newer businesses like advertising and cloud
computing took off, helping to offset the lower margins of its
traditional retail business. Its online retail marketplace now
relies more heavily on third-party vendors -- 58% of sales on the
platform come from taking a cut from these outside businesses, as
opposed to selling goods directly itself.
The result for the latest quarter: Expenses grew 12.6%, the
lowest percentage rise in at least a decade, while Amazon's
operating margin climbed to 7.4%, its best over that time.
On a call with analysts, Chief Financial Officer Brian Olsavsky
said Amazon didn't invest as heavily in new fulfillment centers or
logistics infrastructure as in years past, adding that hiring was
also moderate. Amazon's head count fell by nearly 17,000 employees
during the quarter to a total of 630,600. That represents only the
second sequential decline and steepest drop for the company since
at least 2010.
Mr. Olsavsky, however, stuck to his comments in January when he
warned that spending would pick up again. "My point from the last
call still holds and that we do expect those growth rates to be
higher for all of 2019. So most of that will happen in the next
three quarters."
One of the coming costs is the $800 million the company has
earmarked in the second quarter to shift its Prime free two-day
shipping program into a free one-day delivery as it faces
competition from big-box retailers. The finance chief added that
the second quarter is also when stock-related expenses tend to tick
upward.
As Amazon has become a behemoth with more than $200 billion in
annual sales, its revenue growth has naturally shrunk. But it is
also due to some trouble spots.
For one, Amazon has run into problems overseas, particularly in
India, where new e-commerce rules favor domestic companies over
foreign giants like Amazon. The company also recently pulled the
plug on its third-party online marketplace in China after
struggling to battle the incumbents there.
Its international sales rose 9% in the first quarter, compared
with 19% growth in the fourth quarter.
Mr. Olsavsky said Amazon has made adjustments to comply with
India's latest e-commerce regulations and that there were "few days
of downtime" in the first quarter. "We're very happy with the
progress of the business in India," he said.
Meanwhile, Amazon's booming advertising business didn't fare as
strongly as in recent periods. Revenue for its "other" category --
which is primarily derived from advertising -- rose 34% to $2.72
billion in the first quarter after nearly doubling year-over-year
in the prior quarter.
And as Amazon pushes further into physical retail with
cashier-less Amazon Go stores and bookstores, it has yet to show
much revenue growth. Its Whole Foods grocery chain, which it
acquired in 2017, makes up the bulk of that category, where revenue
rose 1% in the latest period. In April, Amazon implemented a third
round of price cuts on grocery items, primarily on produce and
meats, and said it would introduce more discounts to Amazon Prime
members.
Its biggest and brightest cash cow -- the cloud-computing arm
called Amazon Web Services -- continues to churn out profits. Sales
rose 41% to $7.7 billion, while operating income jumped 59% to
$2.22 billion.
In his annual shareholder letter earlier this month, Chief
Executive Jeff Bezos pronounced his own bullish stance on the
cloud-computing business.
Still, after an early head start that has made it the dominant
player in renting computing power to businesses and government
agencies, Amazon is confronting stiffer competition from Microsoft
Corp. and Alphabet Inc. On Wednesday, Microsoft said quarterly
revenue at its Azure cloud-computing business rose 73% from a year
earlier.
For the current quarter, Amazon projected revenue of between
$59.5 billion and $63.5 billion -- or 13%-to-20% growth from a year
earlier; analysts project on average $62.4 billion in revenue.
The company expects between $2.6 billion and $3.6 billion in
operating income for the second quarter, compared with a
year-earlier $3 billion and analysts' consensus estimate of $3.11
billion.
Write to Yoree Koh at yoree.koh@wsj.com
(END) Dow Jones Newswires
April 25, 2019 19:52 ET (23:52 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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