Holiday season, Prime lift Amazon Q4 earnings

Holiday season, Prime lift Amazon Q4 earnings
Photo Credit: Reuters
31 Jan, 2020

Aided by a robust holiday season customer spending and higher Prime memberships, Seattle headquartered ecommerce giant Amazon posted higher than anticipated revenues in the fourth quarter ended December 31.  

Amazon’s global sales rose 21% to $87.4 billion, around $1 billion higher than the expected $86.5 billion. The company attributed the sales growth to the holiday season, where it saw an increase in demand for Amazon devices. Echo Dot, Fire TV Stick 4K with Alexa Voice Remote, and Echo Show 5 were among the best selling products during the quarter.

The rise in Prime memberships also aided Amazon’s topline. CFO Brian Olsavsky said the company has more than 150 million paid Prime members globally and membership growth in Q4 was higher than any other quarter earlier.

“We’ve made Prime delivery faster — the number of items delivered to the US customers with free one-day and same-day delivery more than quadrupled this quarter compared to last year. Members now have free two-hour grocery delivery from Amazon Fresh and Whole Foods Market in more than 2,000 U.S. cities and towns. Prime members watched double the hours of original movies and TV shows on Prime Video this quarter compared to last year,” Jeff Bezos, CEO of Amazon said in a statement.

Amazon’s US revenues matched the overall topline growth rate of 21% to $53.7 billion while revenues from international operations rose 14% to $23.8 billion.

AWS clocks robust sales

The company’s cloud computing business, Amazon Web Services (AWS), saw revenues grow 34% to nearly $10 billion while operating income rose 19% to $2.60 billion, contributing to nearly 80% of the total operating income. AWS, which provides on-demand cloud computing platforms and interface services, is present in 69 availability zones across 22 geographic regions.

Led by robust sales, Amazon’s operating income rose to $3.9 billion in Q4 as against $3.8 billion in the same quarter last year. Net income increased to $3.3 billion compared with net income of $3.0 billion. Its income rose to $6.47 per share on a diluted basis from $6.04 in 2018.

For Q1, 2020, Amazon has provided net sales guidance in the range of $69.0 billion to $73.0 billion, with a growth rate of 16% and 22%. Operating income is expected to be between $3.0 billion and $4.2 billion, compared with $4.4 billion in the first quarter of 2019. 

Although the company’s overall operating income grew, on a segment basis, it fell in the US and saw loss at the operating level in the international operations. In the US market operating incomes declined to $1.9 billion from $2.5 billion a year ago, while the international segment saw operational loss at $617 million as against loss of $642 million.

Amazon India 

Amazon would have been further able to reduce losses in the international operations had the Diwali season in India not moved to Q4, the company said. As per Amazon estimates, the holiday factor coupled with a consumption tax increase impacted the Q4 growth rate negatively by about 300 basis points. 

This year, ecommerce companies together sold gross merchandise worth $1.8 billion or Rs 11,500 crore in merely three days of the six-day festive season, according to consultancy firm Redseer.

Recently, Bezos announced a $1 billion investment plan for India, through which the company will digitise micro and small businesses and bring more than 10 million online by 2025. The investment is likely to enable $10 billion in India’s exports by 2025 and job creation of 1 crore.

“We will keep identifying areas over in India and tool sets features over in India that we can bring back to other regions to help benefit other sellers and the other websites more broadly,” Dave Fildes, director investor relations at Amazon said.