According to the news report by Bloomberg, Amazon.com Inc. beat analyst expectations in its fourth quarter earnings. The company proved that it could sustain its rapid growth even when increasing profitability and defending its dominant position in e-commerce from retail majors like Walmart Inc.
The e-commerce giant’s report revealed that its advertising business was a key contributor to revenue, underlining the company’s ability to get merchants as well as brands to pay for visibility in its Prime subscription-based platform. This platform has more than 100-million subscribers who pay for extra perks such as discounts on delivery, music and movies streaming, and so on.
The company’s overall revenue went up 20%. However, the revenue sub-category Other, which mostly covers advertising revenue, surged by 95% to generate $3.39 billion for the fourth quarter.
According to EMarketer Inc., shopping spending on Amazon globally will be to the tune of $484 billion this year, which is 26% higher than 2018. Additionally, the research firm believes that 50% of all the online shopping in the United States will on Amazon.com.
The Chief Executive Officer of Amazon.com Jeff Bezos has been exploring options beyond the low-margin online retail business. The company has been expanding into categories with greater profit margins such as advertising and cloud computing.
These profits have also helped the online retail giant expand into the devices segment, and the company now produces smart-home as well as connected-car products that are operated through the company’s Alexa platform which is voice activated.
According to JMP Securities analyst Ron Josey, the fourth quarter results showed that Amazon can still grow further in its core online retail business. The company is also benefiting from customer excitement about its new smart devices.
Amazon’s revenue for the fourth quarter was $72.4 billion, vis-à-vis the market estimate of $71.9 billion. Net income for that time was $6.04 a share, vis-à-vis the market estimate of $5.56 a share.
Amazon Web Services, the company’s cloud computing unit, went up by 45% to $7.43 billion. In the fourth quarter, operating expenses went up by 18%.
In its forecast for this quarter, the company stated that sales are expected to be between $56 billion and $60 billion, vis-à-vis market expectations of $61 billion. The operating income for the first quarter of 2019 is expected to be between $2.3 billion and $3.3 billion, which is within the market expectation of $2.99 billion.
The company’s share price went up and down in late trading and there was little change from the normal trading hours.
International operational losses increased to $642 million. This was a reversal of previous trends where losses in international operations were narrower. The weaker revenue forecast underlined worries about how Amazon would perform in its largest international target for expansion, India.
The company has been facing challenges in the country as the rules on e-commerce platform owned by foreign companies have been changing. Added to this, the chief financial officer Brian Olsavsky states that headwinds from exchange rates in foreign currencies are hurting revenue in the current quarter.
These fourth quarter results also gave investors the first chance to see Amazon’s year-on-year performance since the company acquired Whole Foods Market for $13.7 billion in 2017. Physical store sales, which are largely Whole Foods stores, dropped by 2.7% to $4.4 billion. However, pickups of online grocery purchases from physical stores are not counted as in-store sales, which makes it more difficult to actually quantify the actual performance in Amazon’s push in the grocery segment.
The company’s physical store strategy also includes bookstores as well as a convenience store called AmazonGo, which is a cashier-less concept store.