Amazon.com Inc. reported its strongest holiday-quarter sales growth in eight years, fueled by the company’s dominance in e-commerce and cloud computing even as it pushes into new businesses such as advertising, entertainment and groceries.
The results reassured investors that Amazon’s spending on its various initiatives poses no threat of distractions to its main businesses. Revenue growth is accelerating, and the company is expected to surpass $200 billion in sales this year.
“They’re topping expectations in terms of driving new demand to the platform and becoming more profitable,” said James Cakmak, an analyst at Monness Crespi Hardt & Co.
Sales climbed 38% to $60.5 billion in the fourth quarter, the Seattle company said Thursday. Net income was $1.9 billion, or $3.75 a share. Analysts projected earnings of $1.83 a share on sales of $59.8 billion. Amazon said the earnings included an approximately $789-million benefit in the quarter as a result of the new U.S. tax law.
Chief Financial Officer Brian Olsavsky said the advertising business and Amazon Web Services, the company’s profitable cloud-computing unit, were strong contributors to the quarterly sales growth. Revenue from Amazon Web Services increased 45% to $5.1 billion.
Shares rose as much as 6.8% in extended trading after falling $60.89, or 4.2%, to $1,390 in regular trading in New York. The stock has leaped 67% in the last 12 months.
Amazon consistently delivers big sales gains and plows most of the money back into the company. It equips warehouses with robots, builds data centers, invents products and updates devices such as its voice-activated Echo digital speaker, which Amazon sees as key to getting a foothold in customers’ homes and vehicles.
The company spent $13.7 billion last year to acquire the 460-store Whole Foods grocery chain to become a more serious player in the $800-billion grocery market and enter a bricks-and-mortar retail business dominated by Wal-Mart Stores Inc. It gained more than 200,000 workers in the first nine months of 2017 and it keeps expanding its international reach, with operations in India, Australia and Latin America.
Last week, Amazon unveiled the plant-filled centerpiece of its new $4-billion downtown Seattle office project. And it plans to build a second U.S. headquarters expected to cost $5 billion; it has named 20 contenders for the location of that headquarters.
The question for investors is how quickly Amazon founder and Chief Executive Jeff Bezos will spend his company’s money. Operating expenses last quarter climbed 37% to $58.3 billion — about the same pace as revenue growth.
Amazon dominates e-commerce in the U.S. with its $99-a-year Amazon Prime subscription, which includes delivery discounts, music and video streaming and is intended to keep shoppers engaged with the website. Amazon’s subscription services revenue, which is mostly from Prime memberships, increased 49% to $3.2 billion in the quarter. Third-quarter growth was 59%. The company doesn’t disclose the number of Prime subscribers. In January, it increased monthly rates for Prime subscriptions by $2 to $12.99.
Online sales increased 20% to $35.4 billion, slower than third-quarter growth of 22%. Sales at physical stores, mostly Whole Foods, were $4.5 billion. Sales of warehousing, packaging and other logistics services Amazon provides for e-commerce merchants increased 41% to $10.5 billion. Third-quarter growth was 40%.
Amazon also gave a revenue forecast of $47.8 billion to $50.8 billion for the current quarter. Analysts estimated an average of $48.7 billion, according to data compiled by Bloomberg.