Amazon Revenue Rises 34%, Beating Estimates -- Update

By Laura Stevens Features Dow Jones Newswires

Amazon.com Inc.'s revenue in the third quarter soared 34% to a record, a first for a non-holiday period, as the internet retail giant spread its ambitions with the acquisition of grocer Whole Foods Market Inc. and widened its lead in cloud computing.

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The sales of $43.74 billion, which barely topped the previous record set in last year's fourth quarter, enabled Amazon to surprise investors with a small profit increase to $256 million despite its costs bulging by 35%, a five-year high.

"Certainly costs are going up as we invest in some very key areas," said Chief Financial Officer Brian Olsavsky, citing such areas as Amazon Web Services, which rents computing power to other companies, and its devices business and order fulfillment. Head count increased 77% from a year earlier to 541,900 as the company added Whole Foods employees as well as tens of thousands of warehouse workers.

The third quarter is typically a period of heavy spending, as Amazon opens new warehouses to get them up and running for the holidays. Amazon also hired 50,000 workers over the period to fill open positions following an August job fair, a feat becoming more expensive as competition for labor increases in logistics hot spots.

Shares of the company rose 8% to $1,050.50 in after-hours trading after finishing $972.43 on Thursday. Shares were up about 30% year-to-date.

Mr. Olsavsky attributed strong sales growth to the company's annual Prime Day in July when it offers deals, an event that especially grew overseas. Amazon is also seeing growth from an increase in Prime memberships as the company adds to those benefits.

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This was the first quarter where Amazon included Whole Foods results, which contributed about $1.28 billion to sales after the acquisition closed on Aug. 28. Since taking over the brick-and-mortar grocer, Amazon has slashed some in-store prices and said it plans to add Prime membership benefits to the payment system to reward loyalty. It is also selling Whole Foods private labels online.

Mr. Olsavsky hinted that Whole Foods may soon play a bigger role in the online retail giant's own delivery services.

"I think over time you'll see more cooperation and more working together between AmazonFresh, Prime Now and Whole Foods as we explore different ways to serve the customer," he said.

Currently, Whole Foods partners with Instacart on grocery delivery, although analysts have speculated Amazon could incorporate its new grocery subsidiary into its one- and two-hour Prime Now delivery options.

Amazon also experienced growth in its category that includes its high-margin advertising and co-branded credit card businesses, which grew 58% in the quarter. Analysts expect the business line to keep growing and become an important driver of profitability for the retail giant, and eventually a potential threat to Alphabet Inc.'s Google and Facebook Inc.

The online retailer's bottom line was boosted by Amazon Web Services, which increased sales by 42% to $4.58 billion. The cloud-computing unit has become a major factor in Amazon's recent streak of profitability.

Still, the division is facing tougher competition from both Microsoft Corp. and Google, prompting some concerns about whether the growth can continue at the current pace.

Amazon over the years has ventured far from its roots as an online bookseller in a bid to upend industry incumbents. Besides buying hundreds of brick-and-mortar stores from Whole Foods and developing cloud-data services, it is developing its own delivery network and has become a significant video content creator.

Amazon has also pushed into the business-to-business space, offering products to hospitals, labs and government agencies, and it is exploring selling pharmaceuticals to people, according to a person familiar with the matter. On Thursday, The Wall Street Journal reported that drug retailer CVS Health Corp. is in talks to buy health insurer Aetna Inc.

Amazon Studios, another area of emphasis for the online retail giant, recently underwent a shake-up after the departure of its head, Roy Price, following allegations of mismanagement and sexual harassment.

Still, executives said that the company plans to continue to pour money into video, increasing investments next year. That's because it makes customers sign up for the company's Prime membership.

"We also know Prime members who watch video also spend more on Amazon," added Mr. Olsavsky.

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

October 26, 2017 19:11 ET (23:11 GMT)