Amazon has reported a 32% rise in sales and a 115& rise in net income for the first quarter of 2007.
Amazon’s latest results demonstrate that its aggressive strategy of diversifying into new product areas to drive sales and sustained investment in technology is beginning to pay dividends. Sales increased by 32% to $3.02 billion – at the top end of the company’s expectations. However, the big surprise was the dramatic improvement in profits – with net profit more than doubling to $111 million – smashing both pundits’ and the company’s expectations.
Heavy investment in new technology and the free shipping service offered by its Prime membership program both heavily impacted on profitability throughout 2006. The sharp rise in Q1 profit is attributable to the cessation of technology investment, following the launch of its Unbox TV and film download platform in September 2006. It has also enjoyed a solid increase in new high spending online shoppers joining its Prime scheme during the period.
Sales growth was strong across all divisions – with Amazon’s core North American market spearheading the charge with a 30% sales uplift to $1.62 billion. This is impressive considering the concerns over consumer confidence and the spate of interest rate rises implemented by the Federal Reserve to cool the housing market. International growth was also robust – with net sales ahead by 27%.
Looking ahead, there is plenty to be positive about Amazon. The benefits of a number of initiatives should filter through to its top line throughout 2007 including the launch of its new sports & leisure store in the UK and a dedicated toy store in France. A much anticipated launch into digital music downloads is also on the horizon – though the retailer has remained remarkably tight-lipped about this.
With the technology already in place through its Unbox platform, the key hurdle for Amazon will be to secure deals with the big recording companies – since it wants to offer tracks free of any cumbersome Digital Rights Management (DRM) protection. With its assault into new and profitable product areas and a strong pipeline of business from its service arm, ongoing improvements in profits can be expected throughout the year. This should silence those investors who were venting their frustration at the retailer throughout 2006.
Source: Verdict Research
