Amazon zooms past Wal-Mart after surprise Q2 profit

25 Jul 2015 | Author: | No comments yet »

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New York: Investors helped Amazon celebrate its 20th birthday, pushing the online retailer’s stock up 17 per cent in aftermarket trading Thursday after it reported a surprise second-quarter profit. If the jump holds in Friday trading, Amazon’s stock-market value could surpass that of its longtime retail rival Wal-Mart Stores Inc., signaling a sea change in the US retail landscape. Amazon’s shares surged more than 20pc at one stage yesterday, adding more than $46bn to its market value, after strong growth in its cloud business drove a surprise quarterly profit.

Amazon, which turned 20 on July 16, credited the profit to continued strength of its cloud-computing business and strong revenue growth both domestically and abroad. Revenue from Amazon’s cloud operations – Amazon Web Services (AWS) – nearly doubled in the second quarter, indicating that the business was poised to drive sustainable earnings for the online retailer, Wall Street analysts said. While Walmart still dwarfs Amazon in terms of sales, with significantly higher annual revenues, Amazon’s market cap is now $265 billion, well ahead of Walmart’s $234 billion. Operating margins at the unit jumped to 21.4pc from 7.7pc. “Product sales are Amazon’s bread, but AWS is its butter,” Wedbush Securities analyst Michael Pachter said in a note, raising his price target on the stock by 21pc to $700. “They delivered a pretty large profit, we expected a loss… they exercised discipline and did not invest in new consumer electronic product launches.” Seattle-based Amazon has held a long-time strategy of investing the money it earns back into the company, resulting in quarterly losses or thin profits.

Analysts had been expecting a loss, but Amazon stunned investors posting a profit of $92 million or 19 cent per share for the three months to June 30th. The company began as an online bookstore, but diversification into e-book readers, drone delivery and cloud computing services has seen its revenues and profit climb. Basically it provides businesses with data centre space, removing the need for them to build their own – and very costly – data centres and servers. The company won’t say how many Prime members it has, but it’s estimated to be as many as 40 million, and Prime members typically spend more than other shoppers. While Walmart has been trying to improve its online sales, dabbling in same-day delivery and trying to crowdsource package drop-off among customers, it would seem Amazon has raised its game by selling services – data centre services to be precise.

Last month Facebook became more highly valued than the world’s largest retailer, knocking it out of the top 10 list of the highest-valued companies in the Standard & Poor’s 500 index.

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