| SAN FRANCISCO, July 26
SAN FRANCISCO, July 26 Amazon.com Inc
shares hit a record on Friday after quarterly results increased
optimism about the Internet retailer's U.S. business.
The company reported a second-quarter net loss and weaker
international growth on Thursday. However, its domestic business
expanded quickly and profit in the region improved.
"Their biggest market looks really healthy," said Matt
Nemer, an analyst at Wells Fargo.
Amazon is trying to turn itself from an online retailer into
a broader technology company offering consumer gadgets like
tablets and cloud computing services to corporations and
governments. It is doing this while expanding in competitive
overseas markets such as China.
It is spending billions of dollars on this expansion, which
takes a toll on earnings. However, investors have so far trusted
that Chief Executive and Founder Jeff Bezos can pull it off and
produce big profits in the future. That's help pushed Amazon
shares to new records.
The stock rose 2.7 percent to $311.70 on Friday afternoon
and hit a record of $313.62 earlier in the day.
Amazon said North American sales jumped 30 percent to $9.5
billion in the second quarter while operating profit in the
region was $409 million, up from $344 million a year earlier.
Sales of apparel and consumables are growing very strongly
and this is helping bring shoppers to Amazon's website more
frequently, Amazon Chief Financial Officer Tom Szkutak said.
Amazon Prime, the company's subscription program that offers
free two-day shipping for $79 a year in the United States, is
also growing very strongly, the CFO added.
The company's cloud business, Amazon Web Services, was among
the fastest growing part of the company. Amazon includes results
from this unit in its "Other" segment for reporting purposes and
revenue from this area jumped 61 percent to $892 million in the
"AWS continues to power through, driven by broader adoption
from larger enterprises," said Ben Schachter, an analyst at
Macquarie. "That certainly helps the gross margin."
Amazon does not disclose AWS profits, but Wall Street
reckons the business has higher profit margins than the
company's main retail business. So as AWS grows, Amazon's
Amazon's gross profit margin - a closely watched measure of
earnings that excludes several expenses - was 28.6 percent in
the second quarter, the highest in the company's 19 year
history, according to Michael Graham, an analyst at Canaccord
AWS growth helped, but also more sales of higher-margin
digital products and the expansion of the company's online
marketplace for third-party merchants.
Some on Wall Street are still concerned that Amazon will
spending heavily to fuel growth and sacrifice profits. However,
Szkutak gave doubters some hope.
"Frequently we would be asked historically, is double-digit
operating margins possible? And we still think it's possible,"
the CFO said. "But ... if a good, high single-digit operating
margin gets us to better, higher free cash flow over time,
that's fine too."
Amazon doesn't usually take notice of short-term profit
concerns on Wall Street, but executives occasionally address the
issue to reassure investors, Wells Fargo's Nemer said.
"They could double their profit margins in the next quarter
if they wanted to," Nemer added. "But they would have to stop
investing in all these interesting areas."
(Reporting by Alistair Barr; Editing by Bernard Orr)