Dive Brief:

• Amazon’s efforts to bulk up its Prime membership program paid off in Q1 profit and revenue results that surpassed analyst expectations, although its surging cloud business continues to support its retail operations.

• Amazon's Q1 net sales increased 28% to $29.1 billion in the first quarter, compared to $22.7 billion a year ago. Net income of $513 million, or $1.07 per share, on $29.13 billion in revenue blew past last year’s performance and edged out expectations. Analysts expected earnings of 58 cents per share on $27.98 billion in revenue, according to a Thomson Reuters consensus estimate; Amazon shares rose nearly 13% in after-hours trading Thursday.

• Amazon's Q1 shipping costs nevertheless increased a hefty 42% to $3.28 billion. The company has expanded its Prime Now free same-day delivery to 11 more metro areas for a total of 27. Amazon doesn't detail its growth in Prime membership.

Dive Insight:

Amazon pleased investors this time around, sending its shares up handily—quite a different story from last quarter, its most profitable to date, when its stock price nevertheless dropped off. 

Amazon's Q1 earnings press release is a litany of the moves its made to its array of devices, including its innovative Dash and Echo, as well as improved fulfillment capacity and Prime benefits. Still, Amazon’s 20-year-old retail operations continue to be supported by its 10-year-old cloud business: Amazon Web Services revenue increased a hefty 64% up to $2.57 billion, from $1.57 billion year over year. That beat analyst expectations of $2.53 billion, according to Fortune, and it pumped up the company’s operating income by 300%, to $604 million from $195 million year over year—still lower than analyst expectations. 

A major attraction of Amazon’s $99 Prime membership—its free two-day and in some areas same-day delivery—is also a major expense for the company. Amazon has made a few moves to mitigate that: It’s offering more “add-on” items that won’t ship until an order reaches a threshold, even for Prime members, and it relies on dynamic pricing to some extent, handing out $1 credits to Prime members that opt for slower fulfillment. The question ultimately will be whether all the investment in delivery and fulfillment will pay off some day.

Half of all households in the United States are now Prime members, up from about 35% two years ago, according to research published earlier this month by investment firm Piper Jaffray. Prime membership is concentrated (and growing fastest) among wealthier households—more than 70% of households with annual incomes topping $112,000 have a Prime membership.

Research also shows that Amazon’s Prime members are extremely sticky. Nearly three quarters convert, compared to 13% of non-Prime members, according to a study last summer from Millward Brown Digital.