Amazon Inc. (AMZN) - Get Report shares are poised for their biggest gain in more than two years Friday after the world's biggest online retailer smashed Wall Street's profit forecasts as its next-day shipping offer lead to a surge in holiday sales.
Amazon said its net income for the three months ending in December rose 8% to $3.3 billion, while sales surged 21% to a Street-beating $87.4 billion as next-day delivery helped boost overall U.S. shipping volumes more than four time higher than last year. Costs linked to the plan, however, came in under Amazon's $1.5 billion estimate -- at $12.39 billion -- helping profit margins and efficiency.
Amazon also said it sees current quarter operating income of between $3 billion and $4.2 billion, adding that one-day shipping costs will continue to affect its bottom line over the three months ending in March.
"What we saw was essentially very strong holiday performance from the middle of November on," Amazon CFO Brian Olsavsky told investors on a conference call late Thursday following the earnings release. "We also had a very big uptick and response to the one day availability that's been building through the year. I think Prime has been very strong too."
"We've mentioned that we have more than 150 million paid Prime members globally now, and we mentioned that we have more people joined Prime in Q4 than any other quarter before," he added. "So a lot of good momentum there built up on the aggregation of benefits that we continue to add to the Prime program. Most recently, the expansion of one day shipping."
Amazon shares were marked 9.2% higher by mid-day trading Friday to change hands at $2,041.81 each, after hitting an all-time high of $2,055.72 earlier in the session. The Friday move would lift the stock into a modest six-month gain while valuing the Seattle, Washington-based group at just over $1.02 trillion.
Amazon Web Services, its market-leading cloud business, saw net sales rise 34.5% to just under $10 billion, although that figure fell shy of the 62% gains recorded by rival Microsoft's (MSFT) - Get Report Azure business earlier this week.
Olsavsky also said the company was going to place some travel restrictions on China amid the global health crisis triggered by the deadly coronavirus, but noted the company can't yet assess the impact it will have on broader supply chains.
"Fourth quarter one-day shipping costs were lower than expected but volume acceleration remained robust and we think downside margin risk is now considerably lower," said BMO Capital Markets analyst Daniel Salmon, who carries a $2,450 price target with an outperform rating on the stock.
"The first quarter will still absorb some incremental one-day costs, but we think investors should feel confident that this investment phase has peaked and continue to build positions despite the strength after hours as we see our 'continue to invest while growing margins' thesis getting back on track," he added.