Ahead of the Bell: Amazon climbs in early trading

NEW YORK (AP) -- Shares of Amazon.com Inc. rose sharply in premarket trading Wednesday after the worlds' biggest online retailer showed improving profit margins when it posted fourth-quarter earnings Tuesday.

Amazon's net income dropped 45 percent and the results fell below Wall Street's expectations on most counts. Still, investors latched on to the good news — that the company's always-thin margins are getting a little better. Its operating income was also stronger than its forecast and what many analysts expected.

Though revenue fell short of expectations, Cantor Fitzgerald analyst Youssef Squali said Amazon's profit margin was much better than expected at 24.1 percent, compared with 20.7 percent a year earlier. This could signal that Amazon is starting to reap some benefits from its investments in distribution centers and other parts of its business, such as the Kindle.

Baird analyst Colin Sebastian said the surprisingly better margins helped offset the quarter's revenue shortfall.

"Amazon reported lower-than-expected revenues but higher margins, marking the fifth consecutive quarter of a positive earnings surprise," he said in a note to investors. He added that a product mix shift to third-party sellers, Amazon Web services, "combined with improving shipping efficiency, are helping to drive gross margin expansion."

Shares of the Seattle-based company rose $22.65 or 8.70, to $283 in premarket trading.