Amazon profit crushes estimates as cloud service revenue soars

By Sarah McBride and Narottam Medhora

(Reuters) - Amazon.com Inc on Thursday reported profit and revenue that blew past analysts' expectations, sending its shares soaring in after-hours trading and demonstrating the growing market power of its core retail business and new cloud services division.

The results are a sharp contrast to the disappointing fourth quarter Amazon reported in January, which renewed worries among some shareholders about the company's comparatively thin profit margins. Shares of the world's biggest online retailer jumped nearly 13 percent to $679 in extended trading on Thursday.

Amazon's performance also assuaged concerns about a broader slowdown among tech and internet companies after Apple, Microsoft and Intel all reported disappointing earnings.

"It did restore my faith," said Dan Conde, an analyst at the Enterprise Strategy Group, who keeps a close eye on Amazon's cloud business.

While Amazon displayed impressive growth for a company its size - revenues rose 28.2 percent to $29.13 billion - its Amazon Web Services (AWS) cloud computing division was the highlight with revenues climbing 64 percent to $2.56 billion while operating income more than tripled to $604 million.

Even though operating margins fell at the unit compared to last quarter, as Amazon spends heavily to compete with rivals like Microsoft and Google, they remain a healthy 27.9 percent. That compares to 28.5 percent last quarter, and 16.9 percent a year earlier.

Web services, launched 10 years ago, delivered more profit in the quarter than Amazon's retail business. Research firms say AWS has more than 30 percent of the fast-growing cloud-computing market and it remains far ahead of rivals including Microsoft and Google.

Amazon founder Jeff Bezos also touted the success of new hardware products. "Amazon devices are the top selling products on Amazon," he said in a press release, citing the Echo voice-response system and the Fire TV Stick.

The Echo has been a surprise hit and Bezos said in the statement that the company could not keep it in stock, but he declined to provide sales figures.

Amazon has seen strong growth in subscribers to its Prime loyalty program, which offers one-hour delivery, original TV programming and access to its digital entertainment products such as Prime Music and Prime Video for an annual fee of $99.

The company recently launched a monthly subscription to the program for $10.99. Amazon has also said it plans to offer its video streaming service for a monthly fee of $8.99.

Amazon's growth on the revenue side suggests that the relationship model around Amazon Prime is working, said Frank Gillett, a senior analyst at Forrester Research.

Amazon's net sales in North America, its biggest market by revenue, increased 26.8 percent to $17 billion in the first quarter.

Amazon reported net income of $513 million, or $1.07 per share, for the quarter ended March 31. The company had a loss of $57 million, or 12 cents per share, a year earlier.

Analysts on average had expected a profit of 58 cents per share and revenue of $27.98 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Narottam Medhora in Bengaluru and Sarah McBride in San Francisco; Editing by Kirti Pandey, Jonathan Weber and Bernard Orr)