Amazon Tops Sales Estimates on Subscribers, Whole Foods
(Bloomberg) -- Amazon.com Inc. showed investors it can run grocery stores, churn out gadgets, expand its cloud-computing business and invest in new markets, all while selling more products online and managing expenses.
The company reported third-quarter sales and profit that topped analysts’ estimates. The results reassured investors that the company can integrate its biggest-ever acquisition -- Whole Foods Market Inc. -- without disrupting its dominating e-commerce performance. Shares rose as much as 8.5 percent in extended trading. The stock closed at $972.43 in New York and has gained 30 percent this year.
Whole Foods generated $21 million of operating income in the period, which included about a month of sales. Revenue from “physical stores,” primarily Whole Foods locations, was $1.28 billion.
Investors are encouraged that Amazon is growing in the face of stepped up competition from Wal-Mart Stores Inc. and that it’s running Whole Foods profitably, said Michael Pachter, an analyst at Wedbush Securities Inc.
“They didn’t lose money on the Whole Foods integration, and we just had no idea how much they were going to spend on that,” he said.
Amazon consistently delivers big sales gains and plows most of the money back into the company. It regularly hires thousands of workers, equips warehouses with robots, builds new data centers and updates products like its voice-activated Echo speakers run by the Alexa digital assistant, which the company sees as key to getting a foothold in customers’ homes and vehicles.
The e-commerce giant expanded its ambitions when it spent $13.4 billion on the 460-store Whole Foods grocery chain, becoming a serious player in the $800 billion grocery market and entering the brick-and-mortar retail space dominated by Wal-Mart. And Amazon continues to spread its international reach, with operations in India, Australia and Latin America.
Net income increased to $256 million, or 52 cents per share, from $252 million, or 52 cents, a year earlier, the Seattle-based company said Thursday in a statement. Sales gained 34 percent to $43.7 billion. Analysts estimated earnings of 4 cents per share on sales of $42.2 billion.
The Seattle-based company projected operating income in the current quarter of $300 million to $1.65 billion on revenue of $56 billion to $60.5 billion. Analysts on average estimated profit of $1.55 billion on sales of $58.8 billion.
The question for investors is always how quickly will Bezos spend his company’s money. Expenses rose 35 percent, barely faster than revenue growth in the quarter ended Sept. 30.
Amazon impressed with “all around solid results” and “spending less than feared,” said Josh Olson, an analyst at Edward Jones & Co.
Amazon dominates e-commerce in the U.S. with its $99-a-year Amazon Prime subscription, which includes delivery discounts, music and video streaming and is intended to keep shoppers engaged with the website. Amazon’s subscription services revenue, which is mostly from Prime memberships, increased 59 percent to $2.4 billion in the third quarter. Second-quarter growth was 53 percent. The company doesn’t disclose the number of Prime subscribers.
Chief Financial Officer Brian Olsavsky said the July Prime Day promotion helped boost revenue and memberships internationally, which contributed to the overall performance.
Revenue from Amazon Web Services, its profitable cloud-computing division, increased 42 percent to $4.6 billion. Sales of warehousing, packaging and other logistics services Amazon provides for e-commerce merchants increased 40 percent to $7.9 billion. Second-quarter growth was the same for both segments.
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