Amazon Prime to 'see a lot of invention' as platform builds

Amazon's (NASDAQ: AMZN) Prime platform continues to play a key role in the retail giant's earnings and its streaming component, Prime Instant Video, is helping to reduce subscriber churn, company executives said on a quarterly call with investors. That, along with the $5 billion annually that its AWS (Amazon Web Services) cloud services division pulls in, is helping turn the tide on the multimillion-dollar losses that have become practically routine over the past year as the company continues to invest in its infrastructure.

"We see customers who come in through our free trial pipeline if you will for video content. They convert it at a higher rate," said Tom Szkutak, CFO and SVP for Amazon, on an analyst conference call. "We see--we have a great retention of Prime members, but those who scream actually, we retain those at a higher rate and we bring in new customers through our video pipeline."

Amazon didn't break out numbers for its Prime business this quarter, instead referring back to its year-end and fourth-quarter data when talking about its impact on the company's bottom line. Amazon spent $1.3 billion last year on content for Prime Instant Video, including originals like Transparent, and saw 50 percent growth in Prime subscribers in 2014 despite a $20 price increase.

And while Prime's margins for North America are low at 3.9 percent, compared to other segments of its business, Amazon will continue to invest in the platform, executives said.

Brian Olsavsky, VP and CFO of global consumer business, told analysts that "we're continuing to invest so actively as we build the Prime platform and that we have customers. So you'll see lot of invention definitely to see the Prime platform, which [has] things like Video Content, Prime Music, as we talk about Prime Now devices that will continue to build fulfillment centers for selection and expansion in FBA. So that's--its generally what's driving the operating margin in North America."

Prime Instant Video content, as well as devices like Fire TV and Fire TV Stick, is tightly wrapped into the strategy for Amazon's subscriber service, Szkutak noted. "It's growing very fast. As Brian said, we're feeding the platform and certainly [a] common theme with category expansion, new FCs, original content, Prime Instant Video devices, Prime Now. The common theme is they are all really intertwined with Prime and inextricably to our consumer business in Prime."

Amazon topped net sales estimates for the first quarter of 2015, bringing in $22.72 billion, a 15 percent increase from a year ago. The company stayed in line with quarterly estimates in net loss, posting a $57 million loss, or 12 cents per share.

Its operating income jumped to $255 million, a 72 percent increase over the first quarter of 2014, when it recorded $146 million. Free cash flow also jumped compared to the same period a year previous, reaching $3.16 billion versus $1.49 billion in 2014.

Amazon is forecasting its net sales for the second quarter to be between $20.6 billion and $22.8 billion, with an operating loss of as much as $500,000.

For the first time, Amazon broke out the numbers on one of its biggest investments, AWS, revealing how much of a role the cloud service provider contributes to the company's bottom line. Revenues for AWS reached $1.57 billion in the first quarter, a 49 percent jump from a year ago. And AWS pulls in $5 billion annually, the company revealed.

For more:
- see the earnings release
- Seeking Alpha has this transcript
- WSJ has this story
- Forbes has this story

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Netflix unapologetic on lower Q1 results as it pledges more spending on original content, international expansion
Amazon sets HDR plans as OTT services jump ahead of pay TV
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