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Amazon is Now Bigger than Walmart

Update On :25 July 2015

Amazon is Now Bigger than Walmart

Amazon shares surged on Friday after a blowout earnings report seen as a potential watershed for the US online giant. Amazon leapt as much as 17%, before closing with a 9.8% gain at $529.42 a day after reporting a surprise profit, which fueled hopes that the company's strategy of big investments is finally paying off.

Deutsche Bank analyst Ross Sandler in a note to clients stated that after questioning the investment rationale for years, Amazon is seeing the fruits of its labors in both revenue growth and operating margin. Few mega-cap consumer Internet companies can sustainably demonstrate accelerating revenue and margin expansion at the same time, and when it happens, it's a magical trend that rightfully gets rewarded.

Amazon's shares have doubled since hitting lows last October on pessimism over its profit outlook, and Friday's surge put its market capitalization at nearly $250 billion, overtaking the brick-and-mortar retail leader Wal-Mart. The US e-commerce giant, which is also a major player in online video and cloud computing, on Thursday reported a net profit of $92 million while revenues jumped 20% from a year ago to $23.18 billion.

More potential?

The company founded by Jeff Bezos 20 years ago has been known for investing in long-term projects with little concern for short-term profits, but some of those investments now appear to be paying off.

Cantor Fitzgerald's Youssef Squali said, we believe that Amazon is now starting to move away from the heavy build years for its e-commerce business just as its top line accelerates, yielding the beginnings of the much sought-after margin leverage.

Amazon has in the past drawn skepticism from investors as it expanded with new offerings, including its own Kindle tablets and phones, an online video streaming service, grocery delivery and its latest gadget, a virtual voice-activated personal assistant.

Brian Pitz, analyst at Jefferies, said he remained bullish on Amazon, arguing that it has room to grow. We think Amazon's ability to get purchases to consumers fast is a huge differentiator which drives growth in existing and new categories, he said. He added that Amazon's international operations "carry huge potential’’.

Amazon Web Services, the cloud computing division, was another big factor in the results, showing a revenue jump of more than 80% to $1.8 billion in the three months to June 30, and accounting for $391 million in operating income.

North American sales, which are the largest segment for Amazon, rose 25% to $13.8 billion. Amazon also offered a better-than-expected outlook for the current quarter, predicting revenues in the range of $23.3 billion to $25.5 billion.

Forrester Research analyst Sucharita Mulpuru said that despite the latest results Amazon still shows weak profitability. I'm not sure why this is cause for celebration by investors. It doesn't really change the narrative of Amazon as a break-even business.

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