Amazon reports record profits of $3B, crushes Wall Street expectations for holiday quarter

(GeekWire Photo)

Amazon’s “record-breaking” holiday season powered the tech giant to a strong quarter, breaking a streak of two consecutive revenue misses.

  • Revenue: Amazon posted $72.4 billion in revenue, a rise of 20 percent over a year ago, beating analyst expectations of $71.87 billion.
  • Profits: Amazon’s increased profits continued this year as the tech giant posted $3 billion in net income for the quarter, or $6.04 per share, an increase of a whopping 61 percent over last year. Analysts were expecting Amazon to post earnings of $5.67 per share for the holiday quarter.

Amazon CEO Jeff Bezos called out the digital brain Alexa in the earnings report, noting that the virtual assistant has eclipsed 80,000 voice-activated skills and that the Echo Dot that it powers was the top selling item on Amazon during the holiday season.

“Alexa was very busy during her holiday season,” Bezos said. “Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year. The number of research scientists working on Alexa has more than doubled in the past year, and the results of the team’s hard work are clear. In 2018, we improved Alexa’s ability to understand requests and answer questions by more than 20% through advances in machine learning, we added billions of facts making Alexa more knowledgeable than ever, developers doubled the number of Alexa skills to over 80,000, and customers spoke to Alexa tens of billions more times in 2018 compared to 2017. We’re energized by and grateful for the response, and you can count on us to keep working hard to bring even more invention to customers.”

Despite the strong results, Amazon stock is down slightly in after-hours trading. That’s because Amazon’s projections for the first quarter of this year came in below what analysts expected.

For the year, Amazon reported $232.9 billion in revenue, up 31 percent from a year ago, and the first time Amazon has cracked $200 billion in annual sales.

Profits more than tripled in 2018, to $10.1 billion. Amazon’s profits for the fourth quarter of this year were slightly less than profits for all of 2017 combined, $3.027 billion versus $3.033 billion.

Amazon has traditionally reported low profits for most of its lifetime, choosing instead to plow that money back into the business. But the rise of highly profitable businesses such as Amazon Web Services, have juiced the company’s bottom line.

Here are a few other key numbers and results from Amazon’s fourth quarter:

AWS: The cloud division reported $7.4 billion in revenue 45 percent jump compared to the previous year, and in line with analyst expectations as noted by CNBC. Operating income for the division was $2.17 billion, up 56 percent compared to last year but up just 4.8 percent compared to the third quarter of 2018.

Headcount: Amazon now employs 647,500 people worldwide, an increase of 14 percent over a year ago. In 2018, Amazon added 81,500 people to its global ranks.

Physical Stores: Amazon’s push into brick-and-mortar retail has been a big topic of conversation, and for the first time, we got to see the growth in that part of the business. The numbers aren’t stellar, with a 3 percent decline year-over-year.

Amazon CFO Brian Olsavsky explained that Whole Foods sales are up close to 6 percent overall year-over-year, but a big chunk of money from Prime Now and online grocery orders go into the online stores line item, not physical stores. He added that because of the timing of the acquisition and getting Whole Foods on Amazon’s fiscal calendar, there were more sales days in the fourth quarter of 2017 for Whole Foods than there were in 2018.

Shipping costs: Getting items to the customers fast and on time is a big part of Amazon’s business, and that costs quite a bit. Amazon’s shipping costs were $9 billion in the fourth quarter, up 23 percent from the year before.

Highlights from the quarter:

  • Amazon concluded the attention-grabbing 14-month search for a second North American headquarters by splitting the so-called HQ2 in half between locations in New York and Northern Virginia. Amazon has already gotten pushback from New Yorkers, labor leaders and elected officials and is trying to assuage those concerns by investing in the community.
  • AWS unveiled a bevy of new programs and features at its annual re:Invent conference in November, including: New services to help satellite operators send data to and from space, tools to build robot applications, a reinvention of its serverless computing strategy, a new self-driving racing league with mini cars powered by machine learning and more.
  • The ninth location of the cashier-less grocery concept Amazon Go opened in late December. In the fourth quarter, Amazon opened stores in Seattle, San Francisco and Chicago, with more on the way.
  • In October, Amazon pledged to raise its minimum wage for all its U.S. workers to $15 per hour and lobby Congress to up the federal minimum wage. The surprise move followed a high-profile dispute between Amazon and U.S. Sen. Bernie Sanders over pay and working conditions for the company’s warehouse workers.

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