Amazon: Strong third quarter, outlook, but margin worries emerge

Amazon's third quarter topped projections and the company's fourth quarter revenue outlook is better than expected. Amazon's fourth quarter operating profits, however, look light.

The company reported net income of $231 million, or 51 cents a share, on revenue of $7.56 billion, up from $5.45 billion a year ago (statement). Wall Street was expecting earnings of 48 cents a share on revenue of $7.36 billion.

Meanwhile, the company also delivered a healthy fourth quarter outlook. Amazon projected revenue of $12 billion to $13.3 billion. That's a wide range, but Wall Street was expecting fourth quarter sales of $12.3 billion. Amazon's mid-point of that range is well above expectations. Amazon also said it expected operating income of $360 million to $560 million. That outlook is below the $615 million in operating profit expected by Wall Street.

On the conference call, Amazon CFO Tom Szkutak said that the fourth quarter outlook is being impacted by the investment related to opening 10 new fulfillment centers. "You'll see that ramping up," said Szkutak, referring to fulfillment and infrastructure investments. "We will continue to add capacity for infrastructure for the retail business and AWS (Amazon Web Services)."

That outlook sent shares lower a bit afterhours on concerns that margins would be lower than expected. Then again, Amazon shares surged 33 percent or so leading up to the earnings report.

Here's a look at Amazon's third quarter by the numbers:

• Amazon said that its latest Kindle is the fastest selling device in its history and is outpacing previous generations.
• The Kindle store includes 720,000 books.
• Sales in North America were $4.13 billion, up 45 percent from a year ago. International sales were $3.43 billion, up 32 percent from a year ago.

• Media sales were $3.35 billion, up 14 percent from a year ago. Electronics sales were $3.97 billion, up 68 percent.
• Gross margins in the quarter were 23.5 percent.
• Amazon had 2 million active sellers on its network.
• The employee count at the end of the third quarter was 31,200.
• "Other" sales, the best proxy we have for Amazon Web Services also showed strong growth in the third quarter.