Amazon (AMZN) late Thursday reported improving sales growth but earnings just met analyst forecasts amid hefty shipping costs.
The Seattle-based e-commerce king said first-quarter earnings rose 28% vs. a year earlier to 23 cents a share, meeting the consensus of 44 analysts polled by Thomson Reuters. That excludes one-time costs but includes stock-based compensation.
Sales rose 23% to $19.74 billion, modestly beating views of $19.43 billion. That eased concerns after Q4's 20% gain, which was the smallest in several years.
"A company this size growing the top line at 23% is impressive," said Jason Moser, an analyst for the Motley Fool website.
But operating income fell 19% to $146 million.
Cost of sales, including spending to support Kindle e-readers and free shipping services, leapt 19.1% in Q1. Total operating expenses, including spending on fulfillment, technology, content and marketing, surged 23.3%.
"We continued to invest to support revenue growth," CFO Tom Szkutak said in a post-earnings call with analysts.
Operating margin in Q1, based on a trailing 12 months percent of global net sales, came in at 0.9%, down from 1% in Q4.
Amazon's global shipping costs rose 28% vs. Q1 2013, showing how much it is using its Prime free-shipping program to drive top-line growth.
Amazon raised the price of its annual Prime membership to $99 from $79 on March 13. It was the first increase in nine years.
"Investors will want to see increasing margin expansion going forward," Raymond James analyst Aaron Kessler told IBD.
Amazon shares initially rose in late trade but gave up those gains. The stock closed up 4%.
North American sales surged 26%. Overseas sales rose 18%.
Amazon sees Q2 sales of $18.1 billion to $19.8 billion. The midpoint of $18.95 billion is less than the $19.03 billion average estimate forecast by analysts.
It expects a Q2 operating loss of $55 million to $455 million vs. a gain of $79 million in Q2 2013.
Amazon also said Thursday that it launched Prime Pantry. Prime members will be able to fill up a box up to 45 pounds with groceries — including everyday items like cereal, paper towels and canned soft drinks — and get it shipped for a flat rate of $5.99.
ChannelAdvisor (ECOM), a software maker that helps third-party retailers sell on big online sites, says Q1 same-store sales for its customers who sell on Amazon soared 21% from a year earlier. This was better than the average 15% rise in Q1 by the rest of the U.S. e-commerce sector.
"Amazon continues to make pretty strong market share gains, both against their peers and offline competitors," ChannelAdvisor CEO Scot Wingo told IBD.
The biggest long-term worry about Amazon is whether it can keep growing revenue, said Susquehanna Financial Group analyst Brian Nowak.
"There is always concern that Amazon is going to bump into some penetration ceiling. But I still see a lot of runway both in the U.S. and internationally," Nowak told IBD.
Amazon unveiled its long-expected Fire TV set-top box for streaming Internet video and music and playing games on April 2. A key feature is built-in voice search that lets users speak the name of a movie, actor, TV show, director, app or game into a remote control device and have the results appear instantly.
The Benchmark Co. said in a pre-earnings report on Wednesday that Amazon sold out of its Fire TV units within 10 days, "proving Amazon can be a legitimate living room competitor" while bolstering its "ecosystem" of digital products for the home.
Amazon on Wednesday announced an exclusive deal with HBO to make hit TV series like "The Sopranos" available to Prime members.
Analysts say such perks will encourage users to stay with the more-expensive Prime and help it vie with Netflix (NFLX) and Hulu.
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