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Amazon Hits a Double

Shares rise 12% after an earnings beat and guidance boost.

Updated from 7:51 a.m. EDT

Amazon.com

(AMZN) - Get Amazon.com, Inc. Report

rose 12% early Wednesday in the wake of Tuesday afternoon's blowout earnings performance.

The Seattle-based online retailer posted third-quarter results that beat analysts' expectations while guiding the Street higher on fourth-quarter sales.

Shares rose $3.70, or 11%, early Wednesday to $37.33, a level not seen since before the company disappointed investors with its second-quarter results.

The Internet retail giant said Tuesday that it earned $19 million in the third quarter, or 5 cents a share, down from $30 million, or 7 cents a share, a year earlier.

Net sales increased 24% to $2.31 billion.

Analysts surveyed by Thomson First Call had been looking for a 3-cent profit on sales of $2.25 billion.

"We're pleased with the strong revenue growth and rapid adoption of Amazon Prime," said Jeff Bezos, founder and CEO of Amazon.com. "We look forward to seeing significant sequential improvement in operating leverage this Q4, even as we continue to invest in many initiatives including new retail categories, seller platforms, web services, and digital."

The company's outlook for the fourth quarter also provided a pleasant surprise. Amazon expects sales between $3.625 billion and $3.950 billion, or growth of between 22% and 33%.

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First Call was expecting fourth-quarter revenue of $3.68 billion.

The unexpectedly strong profit numbers are helping to calm investor fears that the company's heavy investments in technology and content, while driving top-line growth, are failing to have an impact on the company's bottom line.

"Not only did they grow revenue, but they did it more profitably than many people expected," says Caris analyst Tim Boyd. "This should alleviate a lot of concerns about the stock. It was an impressive quarter."

Amazon also hinted that, while it will continue to invest in new technology and content, it will emphasize reaping the gains from prior investments. "We will continue to grow technology and content in a deliberate buildup, but we are also going to be growing into the investments we made," Tom Szkutak, Amazon's chief financial officer, said in a conference call.

Analysts also expressed concerns about the Amazon's rising spending on marketing. Anthony Noto, an analyst at Goldman Sachs, wondered whether the company, having built out most of its technology and stocked inventory, would now have to spend increasing amounts to inform customers about its offerings. But Szkutak said that the increase in marketing spending was not part of a broader trend. "We are trying to make sure we educate customers, but it is not a fundamental shift in any way," he said

The quarterly results stand in sharp contrast to Amazon's second-quarter results, which disappointed Wall Street and caused the company's stock price to tumble in the aftermath.

Amazon also suffered from some high-profile missteps during the third quarter. It announced it would dismantle much of A9, its unique search engine. It also rolled out a heavily anticipated video downloading service called Unbox, which was riddled with technical glitches and met negative reviews.

But Amazon seemed to sidestep analyst inquiries on those fronts.

Asked whether Amazon could present any metrics to gauge the success of Unbox, Szkutak said only that it was "just very early" and that the company would continue to expand the available selection. Szkutak also didn't elaborate on the implications of toning down A9, saying only that cost savings should not be expected in the near term as the resources for the project had been shifted elsewhere.

The company's strong guidance for the fourth quarter also calmed some fears about whether it would be able to have its toy offerings up to speed for the critical holiday season. The dissolution of a partnership with retailer Toys "R" Us left the company vulnerable in that area and was seen as responsible for the disappointing second-quarter performance. While Szkutak declined to discuss specifics, the healthy guidance is seen as a cue that Amazon feels it has its house in order.

Szkutak also said that Amazon had bought back $252 million of its stock as part of a $500 million stock repurchase plan the company had announced earlier.