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Amazon widens revenue, margins, profitability in Q1

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Amazon widens revenue, margins, profitability in Q1

A revenue beat and an unexpectedly wide profit margin helpeddrive Amazon.com Inc.'sfirst quarter to consensus-beating profitability.

The company on April 28 reported first-quarter total net salesof $29.13 billion — up from $22.72 billion a year earlier — including $20.58 billionin product sales and $8.55 billion in service sales.

On geographic segments, North American net sales came to $17.00billion, up from $13.41 billion a year ago, and international sales were $9.57 billion,up from $7.75 billion. CFO Brian Olsavsky said that adjusting for foreign exchange,international markets saw its highest growth in years. The jump was driven largelyby Prime sign-ups.

"We're adding Prime subscribers at a high clip," theexecutive said, noting that companywide Prime memberships were up by 51%, a ratethat was higher internationally than domestically.

Executives said the company is investing heavily in its AmazonPrime originals.

"So, beyond the awards, the content is winning and the successwe're having with Amazon, particularly Amazon originals, we feel that program isworking. We're going to significantly increase our spend in that area," Olsavskysaid.

He said that even if Prime matures in the U.S. and growth slows,the company will continue to ramp up investment, particularly in video. But he anticipatesplenty of more growth domestically and elsewhere.

"We think there's a lot of room to grow not only in theinternational companies but also the U.S. We plan on continuing to build the Primebenefits from music to video to two-day shipping, to same-day shipping to PrimeNow. I don't see that dissipating and it remains the best deal in retail, so hopefullyeveryone signs up for that," the executive said.

However, he declined to offer any specific outlook on contentspend.

For the company's Amazon Web Services cloud platform, net salesgrew to $2.57 billion, up from $1.57 billion a year ago. Margins in the unit haveseen material expansion over the past year, Olsavsky said, from 12.4% to 23.5%.

"We're very pleased with the results we're seeing on thetop and bottom line," he said, but he added that due to the immature natureof the cloud business, margins will be "bumpy and affected by levels of investing,price reduction and also cost efficiency."

The expanded AWS margin contributed to a big expansion in thecompanywide operating margin, up to 3.7% from 1.1% in the year-ago quarter. Besidesthe help from strong cloud profitability, the maturity of Prime is making that businessmore profitable, executives said.

Companywide, net income came to $513 million, or $1.07 per share,compared to a loss of $57 million, or 12 cents per share, in the 2015 first quarter.

The S&P Global Market Intelligence consensus EPS estimatewas 59 cents for the first quarter.

Operating income clocked in at $1.07 billion, up from $255 millionin the prior-year period.

Looking forward, Amazon expects second-quarter net sales to bein a range of $28.0 billion and $30.5 billion, representing year-over-year growthbetween 21% and 32%. Operating income is expected to be between $375 million and$975 million, compared with $464 million in second quarter 2015.

Amazon shares were up over 12% in after-hours trading on April28.