Amazon sales surge after Whole Foods deal

Updated / Friday, 27 Oct 2017 17:26

Amazon, the world's largest online retailer, said net income rose to $256m in the three months to the end of September said last night that its sales surged over the summer and its third quarter profit trounced expectations.

Shoppers jumped at "Prime Day" promotions on its website and bought groceries at its newly acquired chain of Whole Foods Market stores.

Amazon is winning business from older, big box rivals by delivering virtually any product to customers at a low cost, and at times faster than it takes to buy goods from a physical store. 

It acquired Whole Foods for $13.7 billion in August to help it deliver groceries to shoppers' doorsteps. 

Amazon's results defied expectations that it would invest nearly all of its earnings into new areas as it has in the past. 

The world's largest online retailer said net income rose to $256m, or 52 cents per share in the quarter ended September 30. Analysts on average were expecting 3 cents per share, according to Thomson Reuters. 

Prime Day, a summer marketing event Amazon has created to replicate the shopping frenzy that is more typical of the winter holiday season, helped boost sales.

Revenue rose 34% to $43.7 billion in the third quarter, including $1.3 billion in sales from Whole Foods. Analysts had expected $42.1 billion.

"There'll be a lot of integration," Amazon's chief financial officer Brian Olsavsky said on a call with analysts, citing how Amazon's two-hour delivery service Prime Now could work with Whole Foods, for instance. 

"We think we'll also be developing new store formats," he said. 

In a first, Amazon broke out sales for its online retail business and for its physical bookstores and Whole Foods locations. 

Revenue from its online stores jumped 22% to $26.4 billion, the fastest growth Amazon has seen in the segment in more than a year. 

Key to its success has been signing more people up for Amazon Prime, its fast-shipping and video-streaming club, whose members tend to buy more from the company. Revenue from subscription fees such as Prime grew 59% to $2.4 billion. 

And Amazon Web Services (AWS), which handles data and computing for large enterprises, saw its profit margin expand from the previous quarter. 

It posted a 41.9% rise in sales to $4.58 billion, beating the average estimate of $4.52 billion, according to analytics firm FactSet.

Amazon shares have a high valuation, with a price-to-earnings ratio more than eight times that of cloud-computing rival Microsoft, for instance. 

Unlike peers, Amazon runs on razor-thin profit margins because it sinks most of its profit back into its business. 

This quarter, which includes the Black Friday shopping day, Amazon said it expects operating profit between $300m and $1.65 billion. Analysts were expecting $930.78m, according to Thomson Reuters. 

Amazon's profit is going toward a dizzying number of investments: warehouses for faster shipping, data centres for AWS, and a 77% increase in employees last quarter, including Whole Foods workers. 

The company plans to spend more on video content next year as well and analysts estimate Amazon will have spent $4.5 billion this year. 

The commitment to content comes after Amazon Studios chief Roy Price resigned last week, and other top studio hands left the company. 

It is unclear what impact the shakeup may have on Amazon's ability to secure video that competes with Netflix for viewers' attention. 

The company's shares have gained about 30% so far this year.