UPDATE 4-Amazon shares set record after strong quarterly profit

Tue Jan 29, 2013 5:25pm EST

* Better-than-expected income, margins push shares to record
    * High-margin areas like e-books, cloud computing helped
drive profit

 (Adds more comments and details from results)
    By Alistair Barr
    SAN FRANCISCO, Jan 29 (Reuters) - Amazon.com Inc 
shares hit a new record on Tuesday after it reported
better-than-expected quarterly profit, fueled by the growth of
higher-margin businesses during the fiercely competitive holiday
quarter.
    The world's largest Internet retailer said that its cloud
computing services, video content sales and its aggressive
expansion in e-books helped increase profitability.
    In addition, a growing network of warehouses or fulfillment
centers closer to customers held down shipping costs as it vied
with Wal-Mart Stores Inc and other major retailers for
consumer dollars over the holidays.
     Chief Executive Jeff Bezos highlighted the Kindle's e-book
business, calling it a multi-billion dollar category that grew
about 70 percent in 2012. Its traditional physical book business
rose about five percent in the same period, he noted. 
    "We're now seeing the transition we`ve been expecting,"
Bezos said in the company's results statement.    
    Profits have shrunk in recent years as the company invested
for longer-term growth, building massive fulfillment centers,
developing a Kindle Fire tablet hardware business in competition
with Apple Inc, and expanding into Internet-based cloud
services.
    The fourth-quarter profit results suggested that Amazon may
be able to generate attractive returns from such spending,
analysts said.
    "The fourth-quarter operating income was up more than
expected," said R.J. Hottovy, an equity analyst at Morningstar.
"This supports the bull case that Amazon can monetize its growth
over the longer term."
    The Seattle-based company said operating income jumped 56
percent to $405 million in the fourth quarter, compared with
$260 million in the fourth quarter of 2011.
    Amazon's stock climbed 11 percent to $288 in after-hours
trading. It hit a record of $284.72 on Jan. 25.     
 
    The company also said fourth-quarter revenue rose 22 percent
to $21.27 billion as it grabbed a big share of online spending
during the holidays. But it was the profit that initially caught
Wall Street's eye.
    "It was a much better-than-expected gross margin, a strong
forward indicator to drive margin expansion. What is really
important is gross profit dollars and that line is stronger,"
said Ken Sena at Evercore Partners.
    The gross profit margins were 24 percent in the fourth
quarter, compared with Wall Street expectations of about 22
percent. 
    "Incredibly strong margins," said Jordan Rohan, an analyst
at Stifel Nicolaus. Amazon generated the highest quarterly gross
margin in its North America business in more than three years,
he noted. 
    Amazon mainly operates as a retailer, buying products at
wholesale prices, storing them and then selling at a slight
mark-up to consumers online.
    But the company has expanded into other businesses that are
potentially more profitable, including cloud computing, digital
content and acting as an online marketplace for other merchants.
    These newer businesses are growing faster than the company's
original retail operations, boosting profitability.  

 (Reporting By Alistair Barr; Editing by Bernard Orr)