Amazon's profit margin rises as new businesses grow

Thu Jul 26, 2012 8:25pm EDT
 
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By Alistair Barr

SAN FRANCISCO (Reuters) - Amazon.com Inc reported quarterly results on Thursday that showed the growth of new businesses is boosting the profit margins of the world's largest Internet retailer.

The company's product revenue, which includes its traditional online retail business, grew 25 percent to $10.79 billion. Services revenue, which includes its online marketplace for third-party merchants and its cloud computing business Amazon Web Services, surged 57 percent to $2.04 billion.

These newer businesses are more profitable than Amazon's retail operations, so as they become a larger part of the company, overall profit margins grow.

Amazon's gross profit margin was 26.1 percent in the second quarter, up from 24.1 percent a year earlier, according to Scott Tilghman, an analyst at Caris & Co.

"There was tremendous growth in Amazon's higher-margin services," Tilghman said. "I can't find a quarter in the past nine years when Amazon's gross margin was over 26 percent."

Amazon Chief Financial Officer Tom Szkutak told analysts on a conference call that the company's third-party marketplace business accounted for 40 percent of units sold during the second-quarter, up from 36 percent earlier.

That helped improve gross profit margins, he said.

WEAK FORECAST, HEAVY SPENDING   Continued...

 
A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008. REUTERS/Rick Wilking