Amazon crushes profit expectations, sales rise 34% to $43.7B, stock up 7%

The Whole Foods location in South Lake Union, just blocks from Amazon’s headquarters in Seattle, had a slightly different look after Amazon completed its acquisition of the grocer. (GeekWire photo / Taylor Soper)

Amazon blew past Wall Street expectations for its third quarter earnings as the company’s stock spiked more than 7 percent in after-hours trading Thursday.

RELATED: Amazon Web Services crosses $ 1B in operating profit as revenue jumps 41 percent to $ 4.6B 

The Seattle tech giant posted a 34 percent increase in net sales for the third quarter, to $ 43.7 billion, and reported profits of $ 256 million ($ 0.52 per share), in line with the year-ago quarter.

Analysts polled in advance of the earnings report expected Amazon to post $ 42.14 billion in revenue for the quarter, with earnings of $ 0.03 per share — both of which Amazon exceeded.

Amazon shares were up 7 percent in after-hours trading following the report. Shares are trading around $ 1,000 a pop and are up about 30 percent this year.

Operating expenses came in at $ 43.4 billion, up from $ 32.1 billion from the year-ago quarter. On an earnings call with reporters, Amazon CFO Brian Olsavsky noted that the company continues to invest heavily in Amazon Web Services (AWS); adding benefits for Prime members; the company’s devices like Echo and Fire TV; and expanding its fulfillment center footprint.

AWS continues to help Amazon post profits, as the cloud computing arm generated $ 4.6 billion in net sales, up from $ 3.2 billion last year, and $ 1.2 billion in operating income, up from $ 861 million.

It was another busy quarter for Amazon. The company completed its $ 13.7 billion Whole Foods acquisition on Aug. 28 and immediately lowered prices at the grocery giant.

Amazon reported $ 1.3 billion in net sales and $ 21 million in operating income from Whole Foods for the quarter (after the Aug. 28 acquisition). Whole Foods posted $ 3.7 billion in sales for the July quarter.

Olsavsky said that Amazon and Whole Foods are now “fully working together.” He noted that Amazon has started to begin the “technical work to make Prime the Whole Foods customer rewards program at some point in the future,” echoing what fellow exec Jeff Wilke said at the GeekWire Summit earlier this month

Also thanks to the Whole Foods deal, Amazon’s headcount is now at 541,900, up from 382,400 last quarter.

Amazon added 159,500 people this quarter. (GeekWire Chart)

Another big Amazon storyline from the quarter was its HQ2 announcement, which sent cities across North America scrambling in an attempt to host the company’s second headquarters and 50,000 new jobs.

Amazon also debuted several new Echo devices, including a new version of its flagship voice speaker. Amazon CEO Jeff Bezos focused on Echo and the company’s voice assistant Alexa in his earnings release statement:

“In the last month alone, we’ve launched five new Alexa-enabled devices, introduced Alexa in India, announced integration with BMW, surpassed 25,000 skills, integrated Alexa with Sonos speakers, taught Alexa to distinguish between two voices, and more. Because Alexa’s brain is in the AWS cloud, her new abilities are available to all Echo customers, not just those who buy a new device,” Bezos said in a statement. “And it’s working — customers have purchased tens of millions of Alexa-enabled devices, given Echo devices over 100,000 5-star reviews, and active customers are up more than 5x since the same time last year. With thousands of developers and hardware makers building new Alexa skills and devices, the Alexa experience will continue to get even better.”

Amazon’s third annual Prime Day shopping bonanza occurred in July, with sales growing 60 percent from last year.

In addition, the company announced two key partnerships with rival Microsoft related to machine learning and voice technology.

Amazon also kicked off its NFL live streaming deal and suspended the head of its studio division, Roy Price, after sexual harassment claims made against him.

Olsavsky noted that Amazon expects to increase its spending on video content next year.

“We have not backed off our strategy,” he said.

For its guidance, Amazon expects net sales between $ 56 billion and $ 60.5 billion for the fourth quarter, and operating income between $ 300 million and $ 1.65 billion.

The company’s earnings conference call with investors and analysts starts at 2:30 p.m. Pacific time.

GeekWire

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