By Greg Bensinger
Is Amazon.com Inc. finally getting serious about profits?
Bucking tradition, the Seattle company posted
higher-than-expected net income in last year's final quarter,
despite sales growth below forecasts. Amazon typically has
satisfied investors with rapidly-growing sales and investments,
even at the expense of profits.
Investors cheered the e-commerce giant's newfound attention to
profits in the wake of its disastrous third quarter, when it posted
its biggest loss in 14 years including a write-down of $170 million
for the failed Fire Phone handset. Shares rose sharply in
after-hours trading, at one point up 13%.
"We certainly have a lot of very interesting opportunities in
front of us, and we need to be selective," said Chief Financial
Officer Tom Szkutak in a conference call with media.
But not too selective. Last year Amazon rolled out a dizzying
array of new products and services including one-hour delivery in
Manhattan, free streaming music for Prime members, a set-top box, a
voice-activated digital assistant and new markets for its same-day
grocery delivery. It dove into movie production while developing
its drone delivery vehicles.
Amazon nonetheless continues to spend freely on acquiring
content like Disney movies for its streaming service and on
developing devices such as tablet computers. Those costs rose 42%
to $2.64 billion, far outpacing the rise in marketing and
fulfillment costs.
Net income totaled $214 million, or 45 cents a share, down from
$239 million, or 51 cents a share, a year earlier. Analysts were
expecting 17 cents per share in profit. Sales rose 15% to $29.3
billion, compared with analyst forecasts of $29.7 billion.
Gross margin, or Amazon's profits not including the cost of
sales, rose to 29.5% from 26.5% in the year-earlier period.
Jason Helfstein, an Oppenheimer & Co. analyst, said Amazon's
moves to stock more inventory from third-party sellers, rather than
buying merchandise directly from manufacturers, may help explain
the uptick in profit.
"They don't buy those goods, and when they sell them the
commission is pure profit," Mr. Helfstein said. About 40% of
Amazon's unit sales now come from third-party vendors, according to
the company.
In a surprise move, Amazon said it would, for the first time,
break out financial results for its Amazon Web Services
cloud-computing unit beginning with this year's first-quarter
release in April. The company has been extremely guarded about AWS
results, declining to comment even this week. Reporting AWS
financials would be a big shift for the company and suggests that
the division has reached a tipping point for disclosure, giving
investors a new benchmark for Amazon.
Piper Jaffray analyst Gene Munster recently estimated AWS would
bring in $6 billion in revenue in 2015, up from $4.3 billion in
2014.
Mr. Szkutak said breaking out AWS would be "an appropriate way
to look at our business."
In the fourth quarter, Amazon said, sales in its core North
American market jumped 22% to $18.7 billion, while overseas sales
rose 3.2% to $10.6 billion. A series of strikes at warehouses in
Germany buffeted the company during the holiday season, slowing or
halting some deliveries.
Amazon guided for sales of $20.9 billion to $22.9 billion, up 6%
to 16% from the year-earlier period, compared with the $23.05
billion projected by analysts polled by Thomson Reuters.
For Amazon Prime, the $99 annual membership program, world-wide
paid membership jumped 53% last year--50% in the U.S. and at a
slightly faster rate internationally, the company said Thursday.
Mr. Szkutak declined to give specific numbers, but analysts
estimate there around 40 million Prime members world-wide.
"When a customer becomes a Prime member, they do step up their
purchases very considerably," he said. By some estimates, Prime
members spend as much as three times what non-Prime members do.
Write to Greg Bensinger at greg.bensinger@wsj.com
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