Amazon 3Q results up on strong sales, cloud computing growth

Friday, October 23, 2015, Vol. 39, No. 43

NEW YORK (AP) — Amazon is Primed for success as the busy holiday season approaches. The e-commerce powerhouse reported a surprise third-quarter profit, driven by a boost in revenue from its Prime Day promotion and continued strong growth in its cloud-computing offerings.

Results beat expectations, and shares jumped 11 percent in aftermarket trading.

Amazon's strategy has long been to invest the money it makes back into its businesses, particularly by expanding offerings in its $99-a-year Prime loyalty program and its cloud-computing business, called Amazon Web Services. But in recent quarters it has shown that it is able to turn a profit, too.

Revenue jumped 23 percent during the quarter, helped by strong sales of electronics and general merchandise, a good sign for the Seattle retailer ahead of the crucial holiday months of November and December, when retailers make a substantial percentage of their annual sales.

"Prime growth is fueling Amazon (in) getting a bigger share of the household budget," said Cowen analyst John Blackledge. He estimates there are about 38 million Prime members in the U.S.

Amazon Web Services sales jumped 78 percent to $2.09 billion.

Amazon Web Services is the biggest player in delivering Internet-based services for other companies. It has many times the business of its closest competitors, Microsoft's Azure, Google Cloud Platform, IBM and Salesforce. There have recently been casualties in the cut-throat space, with HP announcing it was shutting down its HP Helion public cloud.

"Amazon Web Services is a significant part of the business, and the consistent release of new products and features leads us to expect dramatic profit growth in the coming years," said Wedbush analyst Michael Pachter.

Amazon had net income of 17 cents per share. The average estimate of 14 analysts surveyed by Zacks Investment Research was for a loss of 10 cents per share.

The online retailer posted revenue of $25.36 billion in the period. Thirteen analysts surveyed by Zacks expected $24.85 billion.

For the current quarter ending in December, Amazon said it expects revenue in the range of $33.5 billion to $36.8 billion. Analysts surveyed by Zacks had expected revenue of $35.2 billion.

Analysts said the strong quarterly results point to a happy holiday season for the retailer.

Stifel analyst Scott Devitt said Amazon's large and rapidly growing Prime membership base should help retail sales, while the strong cloud-computing business "should continue to benefit from greater scale and innovation."

Amazon shares have risen 81 percent since the beginning of the year, while the Standard & Poor's 500 index has stayed mostly unchanged. In the final minutes of trading on Thursday, shares hit $563.18, a rise of 80 percent in the last 12 months.