Amazon shares soar on analysts’ upgrade

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Shares in Amazon, the world’s largest online retailer, soared as much as 27 per cent on Wednesday, after investors seized upon first-quarter results as evidence that the perpetual innovation em­braced by Jeff Bezos, its founder, is paying off.

Amazon’s biggest one-day gain since May 2001 saw its shares touch $56.42 – its highest level since January 2004.

The news that operating income was rising faster than sales eased concerns among investors, who have accused Amazon of allowing spending on new services and categories to eat into its profits. Sales in the quarter rose to just over $3bn (£1.5bn), compared with a 38 per cent increase in operating income.

Piper Jaffray, Citigroup and Cowen upgraded their analysts’ recommendations following the results on Tuesday, with Citigroup moving the retailer from “sell” to “hold”, citing the reported increase in more profitable sales on Amazon’s sites by third-party merchants.

“We were wrong about the likely end of margin boosts from third-party sales,’’ Citigroup analysts wrote in a note to investors.

Tom Szkutak, chief financial officer, put the improvement down to Amazon being “able to leverage our costs with the high growth rate we had” during the quarter.

Amazon has continued to expand its services, launching a digital film download service with TiVo this year in the US, and adding a toy store to its French site and a sports and leisure store in the UK. It has also created a separate site, Endless.com, to sell shoes and accessories, and added a discounted automatic replenishment service for grocery basics in the US.

It is currently advertising for a new head of grocery.

While total spending of $167m represented a 20 per cent rise on the same period last year, this was 5.5 per cent of total sales, on 6.1 per cent last year.

The retailer also continued to expand its non-media sales, which rose 48 per cent to $947m. Non-media sales accounted for 31 per cent of worldwide sales, against 28 per cent a year ago.

Amazon raised its revenue outlook for the year to a range of $13.5bn-$14bn, from an earlier estimate of $13bn-$13.7bn. It lifted its operating income expectations for the full year to $463m-$593m, up from an earlier $355m-$505m.

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