AMAZON Q4 SALES SOAR 38% TO $60.5B

Dive Brief:

• Amazon.com on Thursday said fourth quarter net sales rose 38% to $60.5 billion, up from $43.7 billion in the year-ago quarter — or 36% excluding a $1.1 billion favorable impact of foreign exchange rates in the period. Operating income rose 69% to $2.1 billion, up from $1.3 billion in the year-ago period, according to a company press release.
• Net income in the quarter was $1.86 billion, or $3.75 per diluted share, up from $749 million, or $1.54 per diluted share in year-ago period, the company said. The results handily bested the Thomson Reuters I/B/E/S forecast for profit of $1.85 per share on revenue of $59.83 billion cited by Reuters.
• For the full year, net sales rose 31% to $177.9 billion, up from with $136 billion in 2016 while operating income fell 2% to $4.1 billion, from $4.2 billion in 2016. Net income was $3 billion, or $6.15 per diluted share, up from net income of $2.4 billion, or $4.90 per diluted share last year. The report factors in a provisional benefit of some $789 million, thanks to tax reform passed in December.

Amazon sends out a litany of accomplishments with its earnings reports, but in his statement Thursday CEO Jeff Bezos was all about Alexa. The company set optimistic projections for the virtual assistant last year,  and they were exceeded, he said. “We don’t see positive surprises of this magnitude very often — expect us to double down.”

Bezos said the technology has “reached an important point where other companies and developers are accelerating adoption.” There are now more than 30,000 skills from outside developers, customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa and the company is seeing strong response to its new far-field voice kit for manufacturers. Amazon didn’t, however, say exactly how many devices it had sold, except to note that the Fire TV Stick and Echo Dot were the best-selling products of the year and that Amazon customers purchased “tens of millions” of Echo devices in 2017.

The e-commerce giant had a very good holiday quarter, and not just because online sales online grew 20% to $ 35.4 billion. But also because fulfillment operations were more efficient, thanks to favorable weather and warehouses running at high capacity, CFO Brian Olsavsky said in a conference call with analysts.

Shipping costs in particular are problematic and grew 31% year over year, while in other quarters they outpaced sales.

All told in 2017, more than 5 billion items shipped with Prime worldwide and more new paid members joined Prime in 2017 than any previous year — both worldwide and in the U.S., the company said. “Given this is above the trajectory of recent growth, it is safe to say that Amazon shows no signs of slowing down. Excluding the impact of Whole Foods, product sales grew by 20.2% overall,” GlobalData Retail Managing Director Neil Saunders told Retail Dive in an email.

While the company is gaining market share in several categories, Saunders believes that Amazon’s primary growth opportunities now lie in services. “Prime and subscription revenue for example, increased by 46% over the prior year,” he said. “This is an impressive uplift and demonstrates Amazon is pulling more and more consumers into its ecosystem of content and services. Allied with the increase in Prime membership is the hike in sales of Echo devices.”

These were popular gifts at the holidays and Amazon has a clear edge over other smart device manufacturers, according to GlobalData Retail’s research. “This, and the fact that Prime offers far more benefits and services than rivals means Amazon should be able to withstand increasing competition from Apple, Google and others as they launch and upgrade their smart speakers and connected home products,” Saunders said.

It’s not just the device sales that are important to Amazon, but also the opportunity the company has to bring Alexa into more homes, said Keith Anderson​, Profitero vice president of strategy and insights.

“Given the aggressive discounting that they did on Alexa devices, just selling the device itself is not enough to get them excited,” he told Retail Dive in an interview. “There’s mounting evidence that Alexa households that are Prime members tend to spend more.”

Alexa has potential beyond retail sales too, considering that advertising could bring another revenue stream, something the retailer is considering. Anderson also expects Amazon to continue advancing Alexa’s technology with capabilities like voice-to-screen that could boost search and make it that much easier to enlist Alexa when shopping for apparel, which both Saunders and Anderson said are a rapidly growing market for the e-commerce giant.

Amazon’s international sales, which seemed to be a focus in recent years, were $18.04 billion in the quarter, overshadowed by its North America operations, which rose 42.2% to $37.3 billion. Amazon’s approach of introducing services in new markets — first its marketplace and then options like “Subscribe and Save” — will continue to allow for steady growth abroad, but not at the clip many previously expected.

“There was a time when everybody thought Amazon was going to be the borderless behemoth and they would dominate the globe, but North America represents a slightly larger piece of the overall pie,” Anderson said.

AWS continues to provide the company a comfortable revenue stream, although it may be facing increased competition from Google and Microsoft.

“What I’ve always noted about Amazon, is the most interesting stuff is what they’re not talking about,” Anderson said, adding that the company didn’t say much about Whole Foods, which was acquired last year, or its growing B2B business. Ultimately though, few should be surprised by yet another quarter of impressive growth from Amazon, according to Anderson. “One of the biggest misunderstandings that people have about Amazon is thinking that growth will slow now that they’re so big,” he said. “They can maintain the pace of growth even at their scale.”

But that brings some risks, Saunders warned. “Amazon is now rapidly moving to a company that supports consumers across multiple aspects of their lives,” he said. And while that’s an opportunity, it also comes with two dangers — the increased risk of regulatory intervention and a backlash from consumers concerned about its power. “Neither of these is at the tipping point, but with each innovation and each spurt of growth, Amazon moves closer to these potential problems,” he said.