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Amazon Soars on a Sales and Earnings Beat: 6 Key Takeaways

Wall Street is giving a thumbs-up to Amazon's strong marketplace growth and better-than-expected AWS revenue.
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  • Publish date:  (AMZN)  didn’t have any trouble topping either its own guidance or Wall Street’s measured expectations for the company.

On Thursday afternoon, Jeff Bezos’ firm reported Q4 revenue of $87.44 billion (up 21% annually) and GAAP EPS of $6.47 (up 7% in spite of high spending growth). Revenue topped Amazon’s guidance range of $80 billion to $86.5 billion, as well as a consensus analyst estimate of $86.03 billion. EPS beat a $4.04 consensus.

For Q1, Amazon is guiding for revenue of $69 billion to $73 billion (up 16% to 22%) and GAAP operating income of $3 billion to $4.2 billion (down from $4.4 billion a year ago). The outlook, which might be conservative in light of Amazon’s recent history of beating its guidance, compares with consensus estimates of $71.63 billion and $4.04 billion. The operating income guidance features an $800 million benefit related to a change in how Amazon records depreciation expenses for servers.

Amazon’s shares finished after-hours trading up to $2,055.20, and took out their mid-2018 and mid-2019 highs in the process. Here are some notable takeaways from Amazon’s earnings report and call.

1. E-Commerce Growth Remained Strong

With its 1-day Prime shipping initiative once more providing a boost, Amazon’s North American segment revenue (covers all North American operations outside of AWS) rose 22% annually to $53.67 billion, topping a $52.67 billion consensus.

International segment revenue (covers international operations outside of AWS) rose 14% to $23.81 billion, beating a $23.45 billion consensus. On the call, CFO Brian Olsavsky noted that a Japanese consumption tax hike and the timing of India’s Diwali holiday in 2019 relative to 2018 had about a 3-percentage-point impact on International growth (in line with prior guidance).

Amazon’s total paid unit sales rose 22% annually -- a growth rate even with Q3, but higher than any prior quarter going back to Q2 2018.

2. AWS Did Better Than Feared

Amazon Web Services’ (AWS) revenue rose 34% to $9.95 billion, topping a $9.82 billion consensus. The public cloud giant’s operating income (pressured by large data center and sales/marketing investments) rose 19% to $2.6 billion.

With Microsoft Azure’s momentum having received more publicity lately, the Q4 AWS numbers are going over well. On Wednesday, Microsoft  (MSFT)  reported that its Azure revenue rose 62% in its December quarter, after having grown 59% in the September quarter (as usual, Microsoft didn’t share a revenue number, just a growth rate).

3. Amazon Now Has More Than 150 Million Paid Prime Members

This disclosure follows an April 2018 announcement that Prime had more than 100 million members, and follows a recent announcement that more people joined Prime in Q4 than in any prior quarter.

Amazon also disclosed that the number of items delivered to U.S. Prime customers the same day or the next day more than quadrupled annually in Q4, and that Amazon Fresh and Whole Foods grocery delivery orders (both now free to Prime members, provided a $35 minimum is hit) more than doubled.

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4. Amazon’s E-Commerce Mix Shifted More Strongly Towards Marketplace Sales

In Q3, Amazon’s online stores (direct e-commerce) revenue rose 21%, while its high-margin third-party seller services revenue (it covers things such as commissions and fulfillment services) rose 27%. In Q4, online stores revenue rose 15% to $45.66 billion (nearly in-line with consensus), but seller services revenue rose 30% to $17.45 billion (well above a $16.58 billion consensus).

Olsavsky indicated seller services revenue got a boost not only from strong volume growth, but also from a pickup in fulfillment services usage as more sellers participated in Amazon’s 1-day initiative. He added that Amazon expects 1-day participation to continue growing in 2020.

Amazon’s marketplace growth continues weighing heavily on eBay  (EBAY) . Two days ago, eBay reported that its marketplace gross merchandise volume (GMV) fell 5% in Q4, with U.S. GMV dropping 8%.

5. Subscription and Ad Revenue Grew Strongly Again

Amazon’s subscription services revenue, which consists largely of Prime membership fees and digital content subscriptions, grew 32% to $5.24 billion, slightly beating a $5.18 billion consensus.

“Other” revenue, the lion’s share of which now comes from Amazon’s ad business, grew 41% to $4.78 billion, beating a $4.62 billion consensus.

The strong growth registered by Amazon’s various services revenue streams (seller services, AWS, subscriptions, ads) helped its gross margin come in at 38.3% -- up fractionally in spite of a major headwind from high shipping expense growth, and above a 37.7% consensus.

6. Amazon Continues Spending Aggressively

Following a Q3 in which they rose 46%, Amazon's shipping expenses rose 43% in Q4 to $12.88 billion. Olsavsky said that the 1-day initiative boosted Amazon's total expenses by slightly less than $1.5 billion in Q4 relative to the year-ago period, and forecast a $1 billion impact for seasonally weaker Q1. 

Fulfillment spending rose 22% to $12.19 billion, tech and content spend rose 27% to $9.74 billion, marketing spend rose 26% to $6.17 billion and G&A spend rose 26% to $1.12 billion.

Direct purchases of property and equipment (driven by warehouse and logistics investments) grew 42% to $5.31 billion. Spending on property and equipment via capital leases (driven by AWS) rose 14% to $4.18 billion.

In addition, Olsavsky forecast that in 2020, Amazon will see “a step up” in the square-footage growth rate for its fulfillment and transportation infrastructures, relative to the 15% growth seen in each of the last two years. These investments aim to make 1-day shipping more cost-efficient, by reducing the distance that inventory has to travel to get to a customer.

TheStreet’s Eric Jhonsa previously covered Amazon’s earnings report and call through a live blog.