Services & Software

Amazon profit surges 31% as sales top expectations

Amazon rebounds with solid first-quarter results, but warns of bumps ahead in the form of an operating loss in the coming period.

Amazon's Kindle Fire tablet James Martin

Amazon's first-quarter sales topped Wall Street expectations, as the company bounced back from disappointing results in the last period.

The company posted first-quarter earnings of $108 million, or 23 cents a share, and revenue of $19.74 billion on Thursday.

Wall Street was expecting earnings of 23 cents a share and revenue of $19.43 billion. Amazon's share price rose nearly 4 percent Thursday, closing at $337.15 percent a share, just before the news hit.

Amazon's share price was down nearly 17 percent over the course of the quarter and had been dropping steadily since the middle of March. But, it was up Thursday morning prior to the earnings, opening at $329.98.

Last year, during the same quarter, Amazon reported earnings of $82 million, or 18 cents a share, on revenue of $16.07 billion.

The company also reported that its operating profit decreased to $146 million, compared with $181 million in first quarter of 2013. Amazon also warned that investors should expect an operating loss of between $445 million and $55 million in the second quarter, compared to an operating income of $79 million in the second quarter of 2013.

This quarter, investors were mainly looking at the growth on the company's retail side with a particular interest in how Amazon's subscription service fee increase may have affected the company, according to analysts.

Near the end of its first quarter, Amazon announced an increased fee for its Prime membership, a subscription service that includes free two-day shipping, and access to video streaming and the Kindle e-book library.

Prime is an integral part of Amazon's e-commerce business. It helps drive purchases and Amazon is dedicated to making it attractive to customers. Last quarter, the company said the subscription covered the shipping of 19 million eligible Prime products. Earlier this month, the company announced that the number was now 20 million.

The membership fee increase, from $79 to $99, might have caused some customers to reconsider their memberships. But it is hard to tell if a significant number of customers chose not to renew at the new rate since the increase took effect after March 31, when the quarter ended.

But analysts will likely still press Amazon to address the effect of the increase during the company's earnings call, scheduled to start at 2 p.m. PT.

Analysts will probably also ask about two other buzzworthy announcements made after the end of the first quarter, the launch of the Kindle Fire TV media-streaming set-top box and Amazon's exclusive licensing deal with HBO. Amazon said the Kindle Fire TV sold out quickly on its site. Although the the HBO deal, announced Wednesday, was a significant win for Amazon, it's unclear if it will move the needle for consumers since the content available to Prime members is still limited. Both developments show Amazon's dedication to being a major player in video content.

Not surprisingly, CEO Jeff Bezos in a statement chose to focus on Amazon's video-streaming offerings, including the Fire TV device and the HBO deal, rather than changes to the Prime membership.

"The team is working hard to keep Fire TV in stock," he wrote. Bezos also mentioned Amazon's new Prime Pantry program, which lets consumers buy non-bulk household items.

Updated 1:30 p.m. PT: Added more information.