Amazon.com Inc.’s sales and earnings last quarter — which included the busy holiday season — beat analysts’ estimates, showing that the world’s biggest web retailer can maintain rapid growth while improving profitability and fending off online competition from rivals such as Walmart Inc.
Advertising was a key moneymaker, highlighting Amazon’s ability to charge brands and merchants for visibility to its 100 million-plus loyal Prime subscribers, whose subscription fees get them delivery discounts, movie and music streaming, and other perks. Overall revenue rose 20%, and the company’s “other” revenue category, which is mostly advertising, grew 95% to $3.39 billion in the quarter.
Shoppers will spend $484 billion globally on Amazon this year, up 26% from 2018, and the Seattle company will capture more than half of all online spending in the United States, according to EMarketer Inc.
Chief Executive Jeff Bezos has been pushing beyond the low-margin business of selling goods online into more profitable categories such as cloud computing and advertising. Those profits also help fuel Amazon’s growing devices business, which includes smart-home and connected-car gadgets that operate on Amazon’s voice-activated Alexa platform.
Strength in online sales over the holiday period showed Amazon still has room to grow in its core business and is benefiting from excitement around its new devices, said Ron Josey, an analyst at JMP Securities.
“This company continues to take wallet share and operate very well,” he said.
Revenue was $72.4 billion in the fourth quarter, the e-commerce giant said Thursday. Analysts had projected $71.9 billion. Net income was $3 billion, or $6.04 a share, beating an average estimate of $5.56 a share. Sales at Amazon Web Services, the top seller of cloud-computing services, climbed 45% to $7.43 billion. Operating expenses grew 18%.
Amazon said sales will be $56 billion to $60 billion in the current quarter, compared with analysts’ average estimate of $61 billion. First-quarter operating income is to be $2.3 billion to $3.3 billion, in line with analysts’ estimates of $2.99 billion.
Losses from international operations widened to $642 million, reversing a trend of narrower losses internationally. The potentially weak revenue outlook highlighted concerns about how Amazon will do in India, its biggest international expansion target, where rules on foreign-owned e-commerce companies are changing. On a call with reporters, finance chief Brian Olsavsky also said head winds from foreign currency exchange rates are curbing revenue in the current quarter.
The company’s shares rose $48.30, or 2.9%, to $1,718.73 in regular trading Thursday before the results were released. They fluctuated between gains and losses in extended trading.
Investor excitement about Amazon’s growing profits helped push the stock to a record high in September, before the shares dipped during a broader market slump at year’s end. Amazon shares are up about 14% this year on investor optimism that the company can maintain growth and profitability. Thursday’s results enabled Amazon to jump back above Microsoft Corp., which is No. 2 in cloud computing, as the most valuable publicly traded company, with a market capitalization of $840.4 billion.
A tight labor market, rising shipping costs and money-losing investments abroad remain threats. In October, Amazon pledged to pay all of its warehouse employees at least $15 an hour, while eliminating some bonuses and stock awards. The cost of stowing, packing and delivering goods increased 12% in the holiday quarter to $10 billion, in line with online sales growth of 12.5%.
The fourth quarter offered investors the first glimpse of year-over-year results since Amazon’s $13.7-billion acquisition of Whole Foods Market in 2017. Sales in physical stores, which are predominantly Whole Foods locations, decreased 2.7% to $4.4 billion. In-store pickups of online grocery orders don’t count as physical store sales, further clouding the ability to track the performance of Amazon’s grocery push. The online retailer’s bricks-and-mortar strategy also includes bookstores and a cashierless convenience store called AmazonGo, which lets customers check in with a smartphone app and be charged automatically based on what they remove from the store.
Amazon has historically delivered relatively little profit as it fulfills Bezos’ strategy of investing to stay ahead. Building warehouses and data centers around the world, inventing new devices and automating tasks usually done by humans are just some of the places Amazon spends its money.