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Amazon’s Record Q4 Earnings Fail to Save the Company’s Stock from Sharp Slip

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by Teuta Franjkovic · 4 min read
Amazon’s Record Q4 Earnings Fail to Save the Company’s Stock from Sharp Slip
Amazon HQ, Seattle. Photo: Dave Sizer / Flickr beat top and bottom line estimates for the fourth quarter, but investors may be focusing more on its light guidance for the first quarter.

After the close Thursday, Amazon reported earnings per share of $6.04, versus analyst estimates of $5.65, and revenue of $72.4 billion versus estimates of $71.9 billion. But it issued Q1 guidance of revenue between $56 billion and $60 billion, short of consensus estimates of $60.83 billion, and operating income of $2.3 billion to $3.3 billion, roughly in line with a $3.09 billion consensus.

Net sales increased 20% year-over-year and operating income increased to $3.8 billion, up from $2.1 billion year-over-year. Net income increased to $3 billion, up from $1.9 billion year-over-year. Shares of Amazon fell slightly 0.6% to $1,715.05 after the results were announced.

However, company officials also cautioned investors to expect increased spending this year compared to last year in terms of investments in fulfilment centers and data centers and increasing its employee base.

Jeff Bezos, Amazon founder and CEO said:

“Alexa was very busy during her holiday season. 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.”

He added that 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.”

Investors initially seemed to take Amazon’s report in stride, with the company’s shares little changed in after-hours trading immediately following the report. But shareholders seemed to sour on the results following news of the stepped-up investments. After the company’s conference call with investors, the stock was off $76.34, or 4.4%, to $1,642.39.

Dan Morgan, a senior portfolio manager at Synovus Trust, which owns Amazon shares said:

“We have such skeptical environment when it comes to tech. If companies don’t hit every single metric they’ve got out there, then investors are like, ‘this isn’t a good report.’”

Do remember that last year, Bezos revealed that Prime had surpassed the 100 million mark in terms of total subscribers, the first and only time the company has quantified the pay tier.

In terms of its TV and film presence, aside from noting awards for The Marvelous Mrs. Maisel, A Very English Scandal and Cold War, the company offered no hard information about its efforts. Past Q4 releases have included previously undisclosed viewership information for NFL Thursday Night Football, for example.

Brian Olsavsky, Amazon’s chief financial officer said:

“I would expect those investment to increase relative to 2018.”

Main Concern is to Minimize the Impact to Customers and Sellers in India

International sales growth also slowed to 15% compared to the previous year’s 29% growth rate. India has been a notable challenge for Amazon, and the company wasn’t able to provide much clarity about what to expect from here. Amazon has been on a hiring spree in India, but a new law will soon kick in that prevents foreign online retailers from selling products through affiliated companies.

Olsavsky said:

“There is much uncertainty as to what the impact of the government rule change is going to have on the e-commerce sector there. Our main issue and our main concern is trying to minimize the impact to our customers and sellers in India.”

Key Sources of Revenue

The growth of Amazon Web Services (AWS) helped produce record profits for the third consecutive quarter. Amazon generated $3 billion in net income, up 66% from last year. In addition to cloud, Amazon is getting a profit boost from advertising and the third-party marketplace, where margins are bigger but sales are smaller. Amazon is historically known for running on thin margins because it reinvests most of its profits back into the company.

Don’t forget that just two days ago FedEx Corp. “spitted” on Amazon saying they are not dependent on Amazon for growth.

What is true is that Amazon has been one of the most preferred stocks of U.S. investors giving magnificent returns over the last few years. Moreover, it is currently the largest public-listed company with a market cap of $830 billion. However, we know that the dynamics of the technology market are changing rapidly with giants like Apple, Alphabet, etc. engaged in intense battle.

To stay at the forefront of the revolutionary change, Amazon is re-strategizing its business and making aggressive moves in different market sectors. This includes shifting to offline retail stores with Amazon Go, to working on AI and voice-controlled tech with Alexa. However, to keep things rolling, Amazon has to meet some immediate challenges ahead of them.

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