Amazon shares climbing sharply on back of encouraging results

On Thursday Amazon posted better-than-expected quarterly results as heavy spending on infrastructure and new products like the Kindle Fire began to pay off through sales of more digital content on the tablet.

RBC Capital Markets analyst Ross Sandler said: “The biggest surprise in the quarter was Amazon’s gross margin increase of 120 basis points year-over-year, the largest uptick in 10 years.”

Faster growth at Amazon Web Services and sales of its digital goods drove the improvement in margins, analysts said.

During the first quarter, nine of the 10 top-selling products on Amazon.com were digital products, including Kindle e-books, films, music and apps.

Macquarie Equities Research analyst Ben Schachter said: “Bulls have been waiting a long time for this gross margin upside and it finally came in the first-quarter,”.

The company’s shares had been hit by the lack of the margin growth over the past few months.

Mr Schachter expects gross margins to continue to improve in the long term as the company benefits from the increasing use of the Internet.

Analysts at Macquarie, RBC, Citigroup and at least nine other brokerages raised their price target on the stock. Nomura upgraded it to “buy” from “neutral”.

Analysts have a mean price target of $218.69.

Amazon shares were up at $227.75 in premarket trade. They closed at $195.99 on Thursday on the Nasdaq exchange.