April 25 - First-quarter sales at Amazon.com surged a softer-than-expected 22 percent but margins still rose, a sign the company is doing a good job balancing new investments in the media world with revenue from its retail and cloud operations. Conway G. Gittens reports.
Sales at Amazon.com jumped 22 percent in the first quarter as demand for retail goods, cloud services and media held up. But that revenue was not as strong as hoped as foreign exchange rates hurt international sales. Meanwhile, profits came in way ahead of forecasts at 18 cents a share. Analysts were generally upbeat after the results Ross Rubin of Reticle Research: SOUNDBITE: ROSS RUBIN, PRINCIPAL ANALYST, RETICLE RESEARCH (ENGLISH) SAYING: "It's building a media business and a subscription business that can drive recurring revenue, which is something relatively rare in retail." And it takes cash to do that. To analysts' surprise - the money going out wasn't at a dizzying pace compared to the money coming in. The company's profitability actually rose with margins unexpectedly to the upside. SOUNDBITE: ROSS RUBIN, PRINCIPAL ANALYST, RETICLE RESEARCH (ENGLISH) SAYING: "It's really not going after huge profits right now. It is taking its revenue and investing that into new initiatives, in particular, Kindle devices and an eco-system. Even within that ecosystem it is trying to pave new ground by investing in original programming." Spending, however, is likely to pick up with Amazon predicting an operating loss for the current quarter. A refresh to the Kindle Fire tablet is already in the works and there are reports a TV set-top box could be coming as early as this fall. SOUNDBITE: ROSS RUBIN, PRINCIPAL ANALYST, RETICLE RESEARCH (ENGLISH) SAYING: "This would be consistent with that opportunity. Today if you are going to invest in this kind of programming you really need to take advantage of it on the big screen. We are seeing growth in mobile video and tablet video but in order to make it further justified for consumers it has to get back up on the television and this would be one way to do it." Investors seem pleased with Amazon's dual strategy. The stock is up 44 percent over the past 12 months, double the 22 percent gain for the Dow Jones Internet Fund, and trumping the 24 percent gain for the SPDR retail ETF. There's one other positive factor - Amazon's foray into the cloud and as a market place for third party sellers is also paying off - providing even more cash to fund its growing media aspirations.