Amazon shares up nearly 8 pct on profit hopes

SAN FRANCISCO Sat Jul 28, 2012 1:41am IST

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008. REUTERS/Rick Wilking/Files

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008.

Credit: Reuters/Rick Wilking/Files

Related Topics

Stocks

   

SAN FRANCISCO (Reuters) - Amazon.com Inc (AMZN.O) shares jumped 8 percent on Friday after quarterly results gave Wall Street hope that the world's largest Internet retailer is focusing on profits.

Amazon reported a big drop in second-quarter net income late on Thursday and forecast a possible operating loss in the third quarter as the company plows ahead with a massive investment drive on multiple fronts.

But the company's gross profit margin, a closely watched measure of its profitability, topped 26 percent in the second quarter, the highest level in at least nine years.

The increase in gross margin was partly driven by the growth of Amazon's online marketplace for third-party merchants, known as 3P. This business accounted for 40 percent of unit sales in the second quarter, up from 36 percent a year ago.

When Amazon sells products itself, it reports the total value of the sale as revenue. The cost of that product is then subtracted for a gross profit margin.

When a third-party merchant sells products on Amazon's marketplace, the company gets a cut of that sale. That commission is reported as revenue, and most of it falls straight to its bottom line as profit.

So as Amazon's 3P business grows, the company's overall revenue growth may slow, but profit margins should increase.

Amazon Chief Financial Officer Tom Szkutak told analysts during a conference call on Thursday that the growth of 3P helped boost gross profit margins.

Amazon shares were up 8 percent at $23 7.80 in afternoon trading on Friday.

"There's evidence now that they are starting to make tweaks to drive profitability," said Matt Nemer, an analyst at Wells Fargo. "Six months ago there were no signs of this."

In February, Amazon hiked fulfillment fees for some third-party merchants that sell on Amazon's online marketplace.

In January, it changed its popular Amazon Mom program, which offers shipping and other discounts to new mothers and others who take care of children.

Amazon Mom subscribers used to get a year of Amazon's Prime program for free. Prime usually costs $79 a year and offers free two-day shipping. The new version of Amazon Mom reduced that to three months free.

Amazon also recently increased the fee charged to Prime customers for one-day, Saturday delivery to $8.99 from $3.99, according to Colin Gillis, an analyst at BGC Financial.

While such moves are small, they have been construed by Wall Street as a sign that Amazon may be trying to better align costs, especially in its shipping operations.

Amazon said net shipping costs were 4.6 percent of sales in the second quarter, down from 4.9 percent a year earlier and 5.4 percent in the fourth quarter of 2011 - before the fulfillment fee and Amazon Mom changes kicked in. (Editing by Leslie Gevirtz and John Wallace)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

The Big IPO

Reuters Showcase

Hardware Push

Hardware Push

Amazon expands Kindle lineup, boosts price of basic e-reader.  Full Article 

Banking on PlayStation

Banking on PlayStation

Sony hopes for PlayStation profit boost as smartphones struggle.  Full Article 

Apple Update

Apple Update

Bug delays Apple's HealthKit availability on iOS 8.  Full Article | Related Story 

Infosys -Huawei Deal

Infosys-Huawei Deal

Infosys partners with China's Huawei for cloud-based projects  Full Article 

New iPads

New iPads

Apple to unveil new iPads, operating system on Oct. 21 - report.  Full Article 

Data Security

Data Security

Apple hiring manager to handle China government data requests  Full Article | Related Story 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage