Future in the clouds: Product sales are Amazon's bread but Amazon Web Services is its butter. Photo: Reuters
Amazon.com Inc's shares surged more than 20% in early trading on Friday, adding more than US$46bil (RM175.4bil) to the company's market value, after strong growth in the e-commerce giant's cloud business drove a surprise quarterly profit.
The company's market capitalisation soared to more than US$270bil (RM1tril), overtaking that of Wal-Mart Stores, the world's biggest retailer.
Revenue from Amazon's cloud operations Amazon Web Services (AWS) – nearly doubled in the second quarter, indicating that the business was poised to drive sustainable earnings for the online retailer, Wall Street analysts said.
Operating margins at the unit jumped to 21.4% from 7.7%.
"Product sales are Amazon's bread, but AWS is its butter," Wedbush Securities analyst Michael Pachter said in a note, raising his price target on the stock by 21% to US$700 (RM2,670).
"They delivered a pretty large profit, we expected a loss ... they exercised discipline and did not invest in new consumer electronic product launches."
The company drew investor ire last year for spending too much after its Fire Phone and Fire TV failed to excite consumers.
Investors have raised concerns that the company's aggressive spending may not pay off. But strong growth in AWS and positive commentary on the Amazon Prime service allayed some worries.
Amazon Prime members, who pay US$99 (RM377.50) a year for speedier delivery and exclusive access to certain movies, music and Kindle books, tend to spend more than regular users of Amazon's services.
"The scale of their distribution network is starting to generate better incremental margins," Barclays analyst Paul Vogel said.
"That, coupled with the continued strong growth in both revenue and margins at AWS, moves us from cautious to optimistic on the next year of growth for Amazon."
Amazon, which last reported a profit in the fourth quarter of 2014, considers AWS its main engine of growth, along with Amazon Prime and Marketplace, where the company acts as a middleman for third-party vendors.
Amazon broke out AWS revenue and income for the first time in the first quarter. — Reuters
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