Analysts Focus On Amazon.com Inc.'s Web Services Q1 Results

Amazon.com Inc.

broke out results for its Web Service unit Thursday with results that pleased investors. Web services revenue grew 49 percent in the recent period to $1.57 billion while its operating income fell 13 percent, excluding foreign exchange effects. Total Amazon revenue of $22.72 billion was 1.4 percent higher than expected, while the loss of $0.12 cents a share was a penny narrower than the consensus. Amazon traded recently at $447.95, up $57.96; The shares gained nearly 20 percent since posting first-quarter results, helping push the Nasdaq Composite Index to a 15-year high on Friday. "From our perspective, Web Services is a business that's still really in day one," Amazon vice president Brian Olsavsky told analysts Thursday. Amazon has said it expects Web Services to eventually equal its retail operations in size, while some on Wall Street have speculated about a spin-off. Web Service's revenue growth was 7.5 percent higher than expected by Jeffries' Brian Pitz, who maintained a Buy rating on Amazon Friday along with a $465 target. Merrill Lynch's Justin Post told Amazon managers Thursday that the segment's first-quarter profit margin was higher than he expected. Chief Financial Officer Thomas J. Szkutak on Thursday said the company's Web Services segment has cut prices 48 times since its inception, but added that its customers are more attracted by innovation than savings. The company's latest round recently cut pricing on its Web Services by between 7 percent and 40 percent, according to Morgan Stanley's Katy L. Huberty. Prior to Thursday's earnings report, Huberty said the segment will grow more profitable as it "starts lapping the price cuts and benefits from a growing revenue base.