Amazon Stands Tall

The stock soars nearly 20% following an earnings blowout.
Author:
Publish date:

Updated from 7:28 a.m. EDT

Already the best-performing big-cap Internet stock,

Amazon.com

(AMZN) - Get Report

has just won itself more supporters.

Shares surged more than 18% early Wednesday after the online retailer blew away the Street's first-quarter earnings expectations and ratcheted up revenue guidance for the second quarter and full year. Piper Jaffray upgraded the stock to market perform from underperform, citing margin gains. That move came two days after Piper downgraded the stock, citing valuation concerns.

Those concerns weren't evident Wednesday. Shares of Amazon climbed $8.24 to $52.99.

The online retailer said net income more than doubled to $111 million, or 26 cents a share, from $51 million, or 12 cents a share, a year earlier. Amazon said its first-quarter effective tax rate fell to 23% from 47% a year earlier.

Sales jumped 32% to $3.02 billion.

Analysts surveyed by Thomson Financial had forecast Amazon to earn 15 cents on $2.92 billion in revenue.

For the second quarter, the company said it expects sales of between $2.7 billion and $2.85 billion; analysts were expecting $2.69 billion.

For the full year, the company said it expects sales of between $13.4 billion and $14 billion, above the current First Call consensus of $13.39 billion.

Amazon's closely watched operating margins came in at 4.8% for the first quarter, above the 4.6% it had reported a year ago. In its fourth quarter, Amazon reported operating margins of 4.9%.

Amazon's spending on technology and content, another metric causing apprehension in Wall Street, edged down year over year. The company reported that 6.2% of sales were invested in technology and content for the quarter, as compared with 6.4% for the same period a year earlier.

During a conference call for investors, Amazon CFO Tom Szkutak said that the growth rate of the company's spending on technology and content would be significantly slower in 2007 than it was in 2006.

While its core retail business is in much better shape than Wall Street had expected, Amazon CEO Jeff Bezos was also bullish about the company's forays into the Web services space where it offers storage and computing capacity to other companies.

"We are seeing very strong demand for those services," Bezos said. "We have been adding new capacity for those services and will continue to do so indefinitely."

As he has done previously, Bezos said that it would take time for the new initiatives to begin making meaningful financial contributions to the company, given the enormity of its retail business. Still, he was optimistic when asked if Amazon's Web services business could rival its retail in the future. "The market sizes are potentially very large, though we will have to wait and see how large," Bezos said.

Amazon also dismissed concerns that the quarterly results were given a big boost by the highly-anticipated release of the new Harry Potter book due out later in the year. "While we are pleased by the pre-orders we have received in the first quarter, the impact on the overall growth rate was pretty small," Szkutak said.

Szkutak sounded particularly optimistic about the company's prospects internationally, where growth rates are not as quick as they are at home. "The international segment is made up of several different countries, but as we get more scale it will help us buy better and improve over time," he said.