Amazon gives prime gift to investors: nice profit
Sales in the holiday quarter climbed 15 percent, leading to a profit well above most analyst predictions.
Seattle Times business reporter
It’s too early to know for sure, but the gloom that hung over Amazon’s stock for most of 2014 just might be dissipating.
The online-retail giant, whose shares sank 25 percent last year, rewarded investors Thursday with better-than-expected profit in its fourth quarter. The company reported net income of $214 million in the quarter, or 45 cents per diluted share. That was well above the 18 cents a share many analysts were expecting.
The result: a huge jump in Amazon’s stock. The company’s shares ended the trading day up $7.80 at $311.78, then climbed $38.42 more in after-hours trading, when Amazon reported results, to $350.20. The stock hasn’t traded that high since July.
Amazon highlighted the growth of Amazon Prime, the $99-a-year service that offers shipping on millions of products at no additional costs, as a key reason for the company’s quarterly success. Even though Amazon increased Prime’s price by $20 last year, it still saw huge gains in membership.
“When we raised the price of Prime membership last year, we were confident that customers would continue to find it the best bargain in the history of shopping,” founder and Chief Executive Jeff Bezos said in a statement. “The data is in and customers agree — on a base of tens of millions, worldwide paid membership grew 53 percent last year — 50 percent in the U.S. and even a bit faster outside the U.S.”
Amazon won’t say exactly how many Prime members there are, but research firm Consumer Intelligence Research Partners believes the number tops 40 million in the United States alone.
In a call with journalists, Amazon Chief Financial Officer Tom Szkutak noted Prime subscribers shop more often and buy more products than non-Prime customers.
“When a customer becomes a Prime member, they do step up their purchases considerably,” Szkutak said.
The company won’t disclose how much more those Prime members buy. But Robert W. Baird analyst Colin Sebastian said in an email interview that they spend three times as much as non-Prime customers. So as the Prime members numbers swell, so do Amazon’s sales.
Amazon prizes those customers so much, it frequently adds new benefits to persuade them to continue their subscriptions, from unlimited photo storage on Amazon servers to an e-book lending library at no additional cost.
In his statement, Bezos said Amazon last year pumped $1.3 billion into its Netflix-like video-streaming service, Prime Instant Video, which is also included in Prime membership.
For the quarter ended Dec. 31, which includes the holiday-shopping period, sales grew 15 percent to $29.33 billion. Analysts expected $29.71 billion in sales.
For the year, Amazon reported sales of $88.99 billion, a 20 percent increase from 2013. It had a net loss of $241 million in 2014, compared with a profit of $274 million the year before
And while Amazon’s quarterly profit was higher than expected, it actually fell from the year-ago period, when the company reported net income of $239 million, or 51 cents per diluted share.
Holiday spending at Amazon was clearly strong. In the quarter, sales of electronics and other general merchandise climbed 21 percent globally to $20.6 billion. To handle those sales, Amazon continued to add staff, particularly at its warehouses. At the end of the quarter, it employed 154,100 full-time and part-time workers, up 4,600 in three months.
Amazon also saw significant growth in Amazon Web Services, which rents computing storage and services to businesses. Sales in the segment Amazon calls “Other,” whose largest component is AWS, grew 41 percent to $1.7 billion.
In fact, the business has become such a meaningful part of Amazon’s operations that the company, which seemingly guards financial data as though they were state secrets, plans to break out AWS results as a separate segment starting with the next quarterly report.
“Breaking out AWS shines a spotlight on the service, on one hand giving investors more transparency, and on the other hand getting more exposure with potential new AWS customers,” Baird analyst Sebastian said.
There’s little doubt Amazon will continue to invest in new markets and maintain the thin margins, and even post losses, that keep some investors wary. Szkutak noted, after Amazon posted lackluster third-quarter numbers three months ago, that the company would be selective in the opportunities it chose to pursue.
But Thursday, he spoke often of investments Amazon was making in emerging markets, such as India and China. And he declined to cite specific opportunities it had passed up in the name of fiscal prudence.
Spending in emerging markets, as well as Amazon’s investments in the mobile devices, huge data centers for its Web-services business, and the expansion of its massive warehouse operations, will likely continue.
Indeed, Amazon is projecting a range of a $450 million operating loss to a scant $50 million operating profit in the current quarter. That compares with $146 million operating profit in the first quarter a year ago.
And those numbers will come even as the company expects a 6 percent to 16 percent jump in sales of between $20.9 billion to $22.9 billion.