Amazon’s cloud-computing more profitable than expected

Amazon's first-quarter revenue grew more than expected as rising sales in North America and its burgeoning cloud-computing services unit offset new business investments, boosting its shares nearly 7 per cent.

The e-commerce company for the first time broke out financial details of its secretive cloud computing unit, Amazon Web Services, on Thursday, saying revenue jumped almost 50 percent to $1.57 billion, or about 7 per cent of total revenue. The unit's operating income grew 8 percent to $265 million.

Amazon shares rose $26.01 to $416 in extended trading, after closing slightly higher at $389.99 on Nasdaq. Chief executive Jeff Bezos revealed in a statement that Amazon Web Services is a $5 billion business and its growth is accelerating. "We're putting a lot of capex (capital expenditure) there, and we think over time we will be able to generate significant free cash flow," chief financial officer Tom Szkutak said on a conference call.

Cloud computing has turned out to be more lucrative than expected, Wedbush Securities analyst Michael Pachter noted. "Amazon's Web service is profitable, and apparently was a year ago as well. Everybody thought it was losing money ... and is probably a bit smaller than people thought it was."

Amazon’s sales from North America rose 24 per cent to $13.4 billion in the quarter ended March 31st, the company said. The company said it is continuing to build its Prime delivery business with its one-hour delivery service called Prime Now. It is also investing in original content for its Prime instant video services and devices.

The international unit, which accounts for about 35 per cent of total sales, remained a drag, with sales for the quarter slipping 1.77 per cent to $7.75 billion. Mr Szkutak said Amazon has stepped up its investments, particularly in India, and remains selective in China. "The growth rate in India is very rapid," he said. "A big part of the challenge there is helping sellers to succeed and grow their online businesses."

Amazon said it expected net sales to grow 7 to 18 per cent in the current quarter to $20.6 billion to $22.8 billion. It estimated an operating loss of $500 million to an operating income of $50 million for the quarter.

Reuters