Amazon (NASD: AMZN) Shares Soar on Earnings Results

Shares of online retail giant Amazon (NASD: AMZN) fell nearly 6% today in the run up to their earnings announcement, then soared almost 9% in the afterhours trading following better than expected results.

The world’s largest Internet retailer said that its cloud computing services, video content sales and its aggressive expansion in e-books helped increase profitability. In addition, a growing network of warehouses or fulfillment centers closer to customers held down shipping costs as it vied with Wal-Mart Stores Inc (NYSE: WMT) and other major retailers for consumer dollars over the holidays.

Chief Executive Jeff Bezos highlighted the Kindle’s e-book business, calling it a multi-billion dollar category that grew about 70 percent in 2012. Its traditional physical book business rose about five percent in the same period, he noted. “We’re now seeing the transition we’ve been expecting,” Bezos said in the company’s results statement.

Profits have shrunk in recent years as the company invested for longer-term growth, building massive fulfillment centers, developing a Kindle Fire tablet hardware and digital content business in competition with Apple Inc, and expanding into Internet-based cloud services. The fourth-quarter profit results suggested that Amazon may be able to generate attractive returns from such spending, analysts said. “The fourth-quarter operating income was up more than expected,” said R.J. Hottovy, an equity analyst at Morningstar. “This supports the bull case that Amazon can monetize its growth over the longer term.”

As customers shift their buying tendencies from traditional brick and mortar stores to online, Amazon stands ready to reap unprecedented benefits. Amazon is a frequent benefactor to collapsing in store sales levels – when electronic giant Circuit City closed, Amazon saw an influx of customers. As Borders closed, Amazon grew once again.

The Seattle-based company said operating income jumped 56 percent to $405 million in the fourth quarter, compared with $260 million in the fourth quarter of 2011. Amazon’s stock climbed 9 percent to $284 in after-hours trading and touched $288 earlier in the session. It hit a record of $284.72 in regular trading on January 25.

The firm continues to focus on new revenue opportunities. One of Amazon’s biggest investments in recent years has been focused on building lots of fulfillment centers closer to shoppers. It costs a lot to set up these giant warehouses, but over the long term, Amazon hopes they will help the company reduce its shipping costs. That strategy shows signs of success in the fourth quarter. Net shipping costs were 4.5 percent of sales in the period, down from 5.4 percent a year early, the company reported.