Amazon shares rally 12% after profit returns

January 30 07:11 2015

Growth of Prime memberships helped return Amazon to modest profitability last quarter, but it left open the possibility more losses will follow. The online sales company made $214 million in the final three months of the year. The results, which topped expectations, sent Amazon shares up 12.2% to $349.93 in after-hours trading. Amazon said it made 45 cents per share in the fourth quarter, significantly higher than analysts’ predictions of 17 cents per share. It had lost money in the prior two quarters.Refunds Offered by Amazon, UPS For Christmas Delivery Problems

Surging sales, however, fell short of Wall Street expectations. Amazon’s fourth-quarter revenue rose 15% to $29.33 billion, which was lower than analyst estimates of $29.67 billion. Strong online holiday shopping data, along with more Prime members, aided the rise in quarterly income. Prime customers get free two-day shipping in the United States as well as exclusive access to movies, music and books for $99 per year.

“When we raised the price of Prime membership last year, we were confident that customers would continue to find it the best bargain in the history of shopping,” Amazon CEO Jeff Bezos said in the earnings report. Prime memberships in the United States grew 50% in 2014, he said. Worldwide they grew by 53%, the company reported. There are now 40 million U.S. Prime members, according to research by Consumer Intelligence Research Partners. They are highly remunerative for the company, spending on average about $1,500 per year, compared with about $625 per year for non-members.

Much of the rise was “on the strength of trial memberships started by holiday shoppers,” said Josh Lowitz, Partner and Co-Founder of CIRP. Amazon’s popular digital streaming service, Amazon Instant Video, also pulls customers to Prime, Amazon CFO Tom Szkutak said in a conference call with analysts Thursday. ”Those customers are converting at higher rates,” he said.

However, some investors questioned whether the considerable infrastructure investments Amazon is making shouldn’t be translating into higher sales and more growth. “The headline numbers that came out were pretty mixed,” said Kevin Kelly, a managing partner with Recon Capital in Greenwich, Conn. “Year over year, sales was just up 3% internationally, when they’ve invested significant amounts of capital overseas. We would have expected it to be a little higher,” he said.