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Amazon sales surge after Whole Foods acquisition, busy Prime Day

By Jeffrey Dastin and Aishwarya Venugopal

(Reuters) - Amazon.com Inc (AMZN.O) on Thursday said its sales surged over the summer and profit trounced expectations, as shoppers jumped at "Prime Day" promotions on its website and bought groceries at its newly acquired chain of Whole Foods Market stores.

Shares rose more than 7 percent in after-hours trade.

Amazon is winning business from older, big box rivals by delivering virtually any product to customers at a low cost, and at times faster than it takes to buy goods from a physical store. It acquired Whole Foods for $13.7 billion in August to help it deliver groceries to shoppers' doorsteps.

Amazon's results defied expectations that it would invest nearly all of its earnings into new areas as it has in the past. The world's largest online retailer said net income rose to $256 million, or 52 cents per share in the quarter ended Sept. 30. Analysts on average were expecting 3 cents per share, according to Thomson Reuters I/B/E/S.

Prime Day, a summer marketing event Amazon has created to replicate the shopping frenzy that is more typical of the winter holiday season, helped boost sales.

The event fared better this year internationally than last year, Amazon's Chief Financial Officer Brian Olsavsky said on a call with reporters.

Revenue jumped 34 percent to $43.7 billion in the third quarter, including $1.3 billion in sales from the upscale grocer. Analysts had expected $42.1 billion.

This was "another strong performance, with top-line growth accelerating in the core retail segment," Baird Equity Research analyst Colin Sebastian said.

In a first, Amazon broke out sales for its online retail business and for its physical bookstores and Whole Foods locations. Revenue from its online stores jumped 22 percent to $26.4 billion, the fastest growth Amazon has seen in the segment in more than a year.

Key to its success has been signing more people up for Amazon Prime, its fast-shipping and video-streaming club, whose members tend to buy more from the company. Revenue from subscription fees such as Prime showed unusually strong growth of 59 percent, to $2.4 billion.

And Amazon Web Services (AWS), the company's most profitable unit, which handles data and computing for large enterprises, posted a 41.9 percent rise in sales to $4.58 billion, beating the average estimate of $4.52 billion, according to analytics firm FactSet.

"They are firing on all cylinders. The machine is churning," Benchmark Co analyst Daniel Kurnos said.

Amazon expects an operating profit in the current quarter between $300 million and $1.65 billion. Analysts are expecting $930.78 million for this critical holiday sales period, according to Thomson Reuters I/B/E/S.


Amazon shares have a high valuation, with a price-to-earnings ratio more than eight times that of cloud-computing rival Microsoft Corp (MSFT.O), for instance.

Unlike peers, Amazon runs on razor-thin profit margins because it sinks most of its profit back into its business.

In a call with media, CFO Olsavsky listed a dizzying number of investments: warehouses around the world to ship goods faster to shoppers, data centers to handle the computing needs of large enterprises, and a 77 percent uptick in employees last quarter, including Whole Foods workers.

The company plans to spend more on video content next year as well, Olsavsky said. Analysts estimate Amazon will have spent $4.5 billion this year.

The commitment to content comes after Amazon Studios chief Roy Price resigned last week, and other top studio hands left the company.

It is unclear what impact the shakeup may have on Amazon's ability to secure video that competes with Netflix Inc (NFLX.O) for viewers' attention.

Amazon Studios came up short at the Primetime Emmy Awards last month, and some have criticized it for not appealing to a broad audience.

The company's shares, which closed down 0.05 percent on Thursday, rose about 7.5 percent to $1,046.00 in after-hours trading following the earnings statement. They had gained about 30 percent this year.

(Reporting by Jeffrey Dastin in San Francisco and Aishwarya Venugopal in Bengaluru; Editing by Peter Henderson and Lisa Shumaker)