Amazon surges on cloud computing, spending control

A worker packs a box at Amazon's logistics centre in Graben near Augsburg December 16, 2013. — Reuters pic
A worker packs a box at Amazon's logistics centre in Graben near Augsburg December 16, 2013. — Reuters pic

SAN FRANCISCO, July 21 — Inc’s shares reached another record, three days before the company’s earnings report, as investors expected upbeat results from the fast-growing cloud-computing business, a boost in sales from last week’s Prime Day promotion and signs that the company is controlling spending.

Amazon rose 1.1 per cent to close at US$488.10 (RM1,858.20) in New York yesterday. The stock set records three days last week and is up 12 per cent this month, while the Standard & Poor’s 500 Retailing Index has gained 5.5 per cent.

The Seattle-based online retailer reports earnings Thursday. Analysts on average project earnings of US$364 million on sales of US$22.4 billion, according to data compiled by Bloomberg.

The shares’ advance shows renewed faith that Amazon can boost profit margins despite Chief Executive Officer Jeff Bezos’s history of sacrificing short-term earnings to invest in growth. A year ago, the company’s shares tumbled almost 10 percent the day after reporting a US$126 million quarterly loss, hurt by a surge in spending on such items as its new Fire smartphone.

This year, the company has invested in online entertainment and same-day delivery in big cities, increasing the allure of a US$99 annual membership in Amazon Prime. Investors see such investments — rather than on hardware — as a sign of greater discipline. Amazon this year also began reporting results for its Amazon Web Services cloud-computing division, revealing a fast-growing and profitable enterprise to complement the core retailing business.

Expanding margins

“The shares are benefiting from enthusiasm around Amazon Web Services and its ability to continue to grow and expand margins,” said Victor Anthony, an analyst at Axiom Capital Management.

Google Inc and Netflix Inc, rivals in streaming media, both rallied last week following upbeat earnings.

Amazon got a boost yesterday after Cowen & Co published a note that said the Web giant would supplant department-store chain Macy’s Inc as the No 1 apparel retailer in the US, gaining market share from Wal-Mart Stores Inc and Target Corp.

The inaugural Prime Day promotion helped boost memberships, which will increase revenue through the year, said Michael Pachter, an analyst at Wedbush Securities. Amazon Prime members spend significantly more than nonsubscribers. He estimated that Prime Day added about $500 million in new third-quarter sales.

Pachter issued a report on Sunday encouraging investors to buy Amazon shares in advance of earnings, in part citing the company’s cloud-computing operation.

“Amazon Web Services has a much higher profit than anyone thought, and we know it’s growing at a ridiculously fast rate,” he wrote. — Reuters