April 24 - Amazon and Microsoft topped sales forecasts as both companies matched or exceeded low earnings predictions. Conway G. Gittens reports.
Amazon bounces back. Sales jump more-than-expected in the first quarter and earnings hit analysts' targets to the penny. The stock is down 15-1/2 percent year-to-date after falling short on results last go round. Revenues were up 23 percent thanks to North American retail operations, but profits are being held down by higher shipping and expansion costs. While the company gets a lot of attention for testing out delivery drones, media deals for its Kindle Fire and Fire TV devices, and the growing importance of its cloud business - at the end of the day - Amazon is a retailer and faces a number of hurdles on that front. No. 1 taxes. A new study shows that when Amazon is forced to collect taxes in a state, sales drop 10 percent. That's a new competitive threat Amazon has to address. Ben Schachter of Macquarie Securities: SOUNDBITE: BEN SCHACHTER, INTERNET ANALYST, MACQUARIE SECURITIES (ENGLISH) SAYING: "Unit sales continue to drift down. It went from 25 percent year-over-year growth in the fourth quarter to 23 percent in the first quarter and the stock did begin to trade off once that number was announced after hours. However, on the positive side, some of the revenue numbers were better-than-expected. The overall revenue growth was better than expected, so somewhat of a mixed quarter." Amazon also faces a growing challenge attracting international consumers because of foreign competitors like China's Alibaba. Microsoft's challenge: continuing the pivot away from dependence on the Windows operating system for PCs. Microsoft's key software unit continues to underwhelm, sales rising just four percent last quarter, as smartphones and tablets grab more market share. Weak Windows sales were not enough though to stop Microsoft from topping low sales and profit forecasts. The devices and consumer unit, which includes xBox and search engine Bing - claimed a 12 percent rise in sales. Even a Microsoft device once left for dead- the Surface- is helping Microsoft's transition beyond Windows into services and hardware, says Morningstar analyst Norman Young. SOUNDBITE: NORMAN YOUNG, ANALYST, MORNINGSTAR (ENGLISH) SAYING: "The good news is that they've been able to eek out a little bit of the gain. Some of that you can tag on to Surface sales. Surface sales for the quarter were approximately $500 million, which equates to probably about three-quarters of a million of Surfaces sold roughly. So that's good news that it looks like people are starting to adopt a little more of the Windows tablet strategy, but when you move over to the commercial segment, that is the more encouraging news." And Young says new CEO Satya Nadella is on the right track. SOUNDBITE: NORMAN YOUNG, ANALYST, MORNINGSTAR (ENGLISH) SAYING: "The big announcement the other week was that, during their build conference, was that they are going to start giving away the Windows operating system for any device including smartphones and tablets that has a screen less than nine inches. That's huge and that really takes away the pricing advantage that Android had for smart phones." Shares of Microsoft, jumped after hours, adding to the stock's modest gain since the start of the year and the eight percent gain since Nadella took over.