Amazon's slim profits beat analyst expectations

The online retail giant continues to put spending on expansion ahead of income growth, pushing into international markets and adding new companies and products to its portfolio.

Amazon CEO Jeff Bezos at a Kindle launch event in September 2012. James Martin/CNET

Even as Amazon keeps spending to expand operations, its first quarter results, announced Monday, beat analysts' earnings expectations.

Net income dropped 37 percent to $82 million, or 18 cents a share. That still topped analyst expectations of 9 cents a share. Sales climbed 22 percent to $16.1 billion just a smidgen below consensus expectations of $16.2 billion.

The online retail giant is seemingly always in investment mode, and this quarter was no exception. The company acquired Goodreads , a social network for people who love books. It inked new deals for its Prime Instant Video service with A+E Networks, FX, and CBS (owner of CNET), among others. Amazon plans to add three new fulfillment centers in the United States in the coming months as well as few more internationally, Chief Financial Officer Tom Szkutak said in a conference call with analysts on Thursday. And it's expanding operations abroad, in countries such as China, he said.

"We certainly are investing," Szkutak said in the call.

Amazon's shares climbed briefly on Thursday, but then sank $7.50 to $267.20 in after-hours trading.

Szkutak declined to address rumors about Amazon planning to introduce either a smartphone or a streaming video set-top box .

"We have a long-standing practice of not talking about what we might do there," Szkutak said.

He did note that the top ten best-selling items on Amazon.com are Kindle e-readers and other digital products. And he said the best-selling item is the Kindle Paperwhite e-reader.

In the quarter, the company rode sales of electronics and other general merchandise for its biggest revenue gains. North American merchandise sales hit $6.1 billion, up 28 percent from the year ago period, while international merchandise sales climbed 28 percent to $4.1 billion.

Meanwhile media sales -- digital downloads, software, video games and the like -- climbed 14 percent in North America to $2.5 billion. International media sales climbed 1 percent to $2.5 billion.

In the press release about its earnings, Amazon highlighted original programming coming from Amazon Studios.

"Amazon Studios is working on a new way to greenlight TV shows. The pilots are out in the open where everyone can have a say," said Jeff Bezos, Amazon's founder and chief executive.

Given Amazon's history of prioritizing investment ahead of income, investors often look to its margins for a window into when its profitability will ramp up. In the first quarter, Amazon's operating margins as a percent of consolidated sales slipped to 2.7 percent, from 3 percent a year ago. The company's North American operating margin grew to 4.9 percent, up from 4.7 percent in the year ago period.

Updated 3:15 p.m. PT: More details from the conference call and analysis.

 

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