Amazon.com (Nasdsaq: AMZN) investors fearing the worst can exhale. The leading online retailer is growing faster than analysts were expecting, and margins aren't contracting as badly as the pros had feared.

Net sales soared 34% to $13.2 billion in the first quarter, with North American sales growing even faster. Profitability declined 35% to $0.28 a share -- and trailing free cash has retreated 39% over the past year to less than $1.2 billion -- but this is the price that Amazon has to pay if it wants to arm the world with Kindles that invite consumers into its promising digital ecosystem.

Analysts figured Amazon would muster a profit of only $0.07 a share on $12.9 billion in net sales, so it's easy to see why the stock is soaring on a fourfold beat on the bottom line.


Amazon is pounding the table when it comes to the exclusivity of its ecosystem. The e-tailer points out that 130,000 in-copyright books -- including 16 of its 100 best-sellers during the quarter -- are exclusive Kindle Store titles.

This is clearly a salvo to those wooed by Barnes & Noble's (NYS: BKS) Nook, especially the new illuminated GlowLight model that's turning heads -- and turning off table lamps. It's also a warning shot to Apple (NAS: AAPL) and traditional publishers that are under fire for potential price fixing. Amazon isn't just making more money than the market was expecting. It's disrupting the publishing world with its seamless self-publishing model.

The only disappointment in Amazon's report is its guidance for the current quarter. The dot-com darling expects net sales to grow 20% to 34% in the second quarter, so top-line growth will decelerate unless it nails the high end of its range. Analysts were perched on the higher end of that range, with a forecast calling for net sales to climb nearly 30% during the period.

This is still an impressive growth rate for a company of Amazon's girth. Overstock.com (NAS: OSTK) saw its revenue actually decline slightly during the same three months. When high-end jeweler Blue Nile (NAS: NILE) reports in two weeks, Wall Street's settling for a meager 3% increase in net sales.

Value hounds may be scratching their dog ears at Amazon's lofty valuation, but there's a bigger picture here that just seems to be clicking for the company.

Gnaw something
Nine out of 10 of Amazon's best-selling items during the quarter were digital products. Clearly, the next trillion-dollar revolution will be in mobile, and Amazon isn't the only likely winner. A free special report will get you up to speed.

At the time this article was published The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com, Apple, and Blue Nile, creating a bull call spread position in Apple, writing puts on Barnes & Noble, and creating a call spread/risk reversal on Blue Nile. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz owns a first-generation Kindle and a Kindle Fire, but he owns no shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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