revenues up 23%, but costs are rising fast

A parcel moves on the conveyor belt at Amazon's logistics centre in Graben in this file photo, the giant online retailer, has been trading at some really ridiculous price-to-earnings ratios – over 500 this year. The rating is due to the company’s rapid sales growth; investors believe that Amazon’s strong revenue growth will ultimately translate into high levels of profit, even though thus far the company has failed to deliver meaningful profit.

However, Amazon’s path to profitability is somewhat unclear. The company faces a host of challenges from increasing competition to a changing regulatory environment, and its costs have been rising fast. Amazon has been doing a lot to boost growth and profits, from raising the price of its Amazon Prime service to introducing a new gaming console, but it’s not clear that these will be a success. At its current price, Amazon looks like something of a gamble. – FD Inc’s revenue grew more than expected for the first quarter, offset by a sharp increase in spending on technology, content and new warehouses as the e-commerce giant branches into new businesses.

Revenue rose 23 percent to $19.74 billion in the quarter on the strength of North American sales of electronics and other items. International sales were a drag, growing only 18 percent.

The Seattle-based company’s overall revenue growth bested the average Wall Street estimate of $19.4 billion, according to Thomson Reuters I/B/E/S. Amazon reported earnings per share of 23 cents, in line with expectations.

Shares of Amazon, which is rapidly expanding its lineup of devices and computing services to sustain its pace of growth, rose 1.6 percent to $342.56 in after hours trading.

Amazon is spending big on a wide range of projects as its core retail business comes under pressure. The company is developing its own shows and video games, while moving more forcefully into hardware with the debut of its Fire TV video streaming box as well as a long-rumored smartphone.

First-quarter operating expenses shot up by 23 percent. Amazon’s fulfillment costs rose 29 pct while its technology and content spending rose 44 percent.

Amazon now faces a few near-term hurdles, including new laws in several states forcing the company to collect sales taxes. A study published this month showed Amazon sales fell 10 percent in such states.

The e-commerce company also faces heightened competition abroad from rivals like Alibaba, which is laying the groundwork for what could be the largest initial public offering for a technology company.

The first-quarter report comes as Amazon tries to build the case for its Prime service after hiking its annual fee to $99 from $79 last month. Prime users get unlimited two-day shipping, access to streaming video and other perks.

This week alone, Amazon unveiled two initiatives to stem defections, including a deal to stream older shows from HBO, the premium cable channel owned by Time Warner Inc

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