Amazon.com is back in fashion with investors. Concern about the cost of Amazon’s one-day delivery pledge lingered after a busy holiday period, holding the stock back while shares of rivals including Microsoft, Google and Apple all rallied.
That abruptly changed on Thursday when Amazon reported results that crushed Wall Street estimates. CEO Jeff Bezos added to the enthusiasm by revealing the company has 150 million Prime subscribers who pay monthly or annual fees for shipping discounts and other perks, up from 100 million about two years ago. The stock surged 10% in extended trading.
The largest US e-commerce company has ramped up spending in several key parts of its business. In e-commerce, it’s rolling out one-day delivery to fight Walmart and other retailers. The Amazon Web Services cloud business is building new data centres and hiring engineers in response to steady gains by Microsoft and a renewed customer push from Google.
Meanwhile, Amazon continues to plough money into overseas markets such as India and Brazil. The results showed that these investments are paying off. Fourth-quarter sales climbed 21% to US$87.4-billion and, profit rose to $6.47/share, the Seattle-based company said in a statement.
Analysts, on average, projected sales of $86.2-billion and earnings of $4.11/share, according to data compiled by Bloomberg. Amazon’s forecasts for the current quarter matched expectations. “I’m shocked by the profits,” said Tom Forte, an analyst at DA Davidson & Co. “I thought the story was going to be how investments in next-day shipping pushed profits down.”
The big increase in Prime subscriptions suggests Amazon is luring overseas shoppers as the US market saturates. Prime members spend about twice as much as other customers. “This shows how big of a step one-day delivery was in terms of maintaining engagement on its marketplace,” said RJ Hottovy, an equity analyst at Morningstar. “The Prime membership number shows they are seeing strong growth internationally.”