Amazon.com Inc.’s unexpected quarterly profit — driven by better-than-expected sales, better results in cloud computing and more efficiencies in product fulfillment — could be short-lived.
Wall Street was stunned on Thursday when Amazon reported an unexpected profit of 19 cents a share; analysts had been looking for a net loss of 13 cents. Revenue was far higher than projected for the e-commerce giant in the third quarter, fueled in part by less competitive pricing in its cloud services business. Shares skyrocketed nearly 17% in after-hours trading, putting Amazon’s market capitalization ahead of retail giant Wal-Mart’s.
Amazon AMZN, -1.25% Chief Financial Officer Brian Olsavsky, in his first conference call with analysts since being named to his new position, is not changing much about the company’s tight-lipped policy on finances. Other than Amazon’s recent break-out of its cloud-computing business — known as Amazon Web Services, or AWS — the company does not plan to break out individual product unit sales data.
He also declined to give a tighter range of guidance for the current quarter, and that prediction shows losses could return extremely soon. The company’s forecast for the current quarter ranges from a net loss of $480 million to a profit of $70 million, compared with a net loss of $544 million in the year-ago period.
Amazon’s free-spending ways also seem likely to get in the way of a repeat profit.
During the third quarter, Olsavsky said Amazon plans to invest more in its fulfillment centers as the company prepares for the big holiday season, and it expects its content costs to increase as it invests in more original content that is part of its Prime streaming-video offerings. Amazon also has plans for launches of new Kindle devices, though he declined to comment about the Fire Phone, which Wall Street believes has been a failure.
A big explosion in new Prime customers as a result of Amazon’s successful Prime Day could also add to Amazon’s fulfillment costs for the quarter, while also boosting revenue.
When asked whether or not Amazon’s results may be more predictable in the future, Olsavsky said the company has two ongoing focuses: It is continuing to drive operational improvement, but also investing in its in marketplace, Amazon Prime and AWS.
“Admittedly, it is lumpy, and we will continue to work on those tracks going forward,” Olsavsky said.
Whether or not Amazon can continue to be profitable thanks to its improved AWS margins is a big question. Based on the company’s spending plans for the quarter, investors may have to be prepared for another loss next quarter, but for now at least, they can enjoy the ride to new Wall Street heights.
[“source – marketwatch.com”]