Amazon video streams triple while sales climb 23 percent, but profits remain thin

Video streams on Amazon's (NASDAQ: AMZN) Prime Instant Video service "nearly tripled" in the first quarter compared to the same period last year. The online giant touted new products in its earnings release, like Fire TV and its HBO content deal, while minimizing more worrisome aspects of its financials, like its spiraling expenses.

Net sales were up 23 percent for Amazon, but the cost of doing business is eating away at its overall profits, its earnings results for the first quarter revealed. Operational expenses were $19.6 billion, up from $15.9 billion a year ago, and shipping costs jumped 31 percent over 2013 to $1.83 billion.

The online retail giant recorded net income of $108 million, with earnings per share of 23 cents. That was in line with analysts' expectations.

But analysts sounded a worried note on Amazon's continued spending levels.  

"Top line growth is doing well. It's an acceleration. But they're spending money freely," BGC Partners analyst Colin Gillis told MarketWatch.

Much of that spending took place in its shipping operations, as well as its Amazon Web Services operations. But development and launch of its new Fire TV box also presumably ate up a chunk of that cash, according to a MarketWatch story.

Amazon's increase in Prime membership rates in March, from $79 to $99 per year, was largely driven by the costs related to shipping. "The biggest one was we think we built a great service (but) transportation costs had grown dramatically," said CFO Tom Szkutak on the earnings call, who added that a number of different factors led to the price rise.

Amazon introduced several new products in the quarter, including Fire TV and its HBO content deal for Prime Instant Video. Szkutak stayed neutral in responding to questions about the HBO deal, saying only that Amazon has continued to add great content and that the deal will be "great for customers."

The second quarter will likely proceed along similar lines as the first: Amazon forecast sales between $18.1 billion and $19.8 billion. It also warned of an operating loss between $55 million and $450 million due in large part to expected stock-based compensation and amortization of its intangible assets.

Investors don't seem to be fazed by the thin profit margins, however: Amazon stocks rallied 4 percent ahead of its results announcements, and continued to gain 2 percent to $337.73 after market close.

For more:
- see the earnings release
- MarketWatch has this story
- Business Insider has this story

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