AMZN Amazon.com Inc

By Laura Stevens 

Amazon.com Inc. on Thursday posted a 55% rise in fourth-quarter profit, turning its banner holiday season into a sustained streak of profitability.

However, shares of Amazon fell 3.7% to $808.99 in after-hours trading as the company's total sales fell short of analyst expectations, as did its outlook for the current quarter.

For the December quarter, profits rose to $749 million, or $1.54 a share, from $482 million, or $1 per share, a year earlier. Analysts surveyed by Thomson Reuters expected earnings of $1.35 per share. This marks the seventh straight profitable quarter for Amazon.

Sales of $43.74 billion, up from $35.75 billion, were within Amazon's own forecast of $42 billion to $45.5 billion but below analysts' expectations of $44.68 billion.

For the first quarter, Amazon projected sales between $33.25 billion and $35.75 billion. Amazon said its sales guidance anticipates an unfavorable impact of $730 million from foreign exchange rates. Analysts, on average, were expecting sales of $35.95 billion in the first quarter.

The company also estimated total operating income between $250 million and $900 million, compared with $1.1 billion in the year-ago quarter.

Helping the online retailer's profitability in the December quarter was its Amazon Web Services cloud computing division. Operating income increased to $926 million from $580 million, while sales grew 47% to $3.54 billion. The unit, which rents computing power to a variety of startups, government agencies and other corporations, has become a major factor in Amazon's recent streak of profitability.

Chief Executive Jeff Bezos had said he expected AWS to reach $10 billion in sales for 2016, a target the company easily surpassed at $12.22 billion, even as competitors including Microsoft Corp. and Alphabet Inc. ramp up competitive pressure in the space.

According to receipt-tracker Slice Intelligence, the Seattle-based online retailer was a clear winner during the holidays, capturing nearly 40% of total online holiday sales, while overall online spending surged an estimated 20%. The next closest retailer was Best Buy Co., shy of 4% of e-commerce market share.

Amazon's online prowess may have come at the expense of other traditional retailers. Already, Macy's Inc. and Kohl's Corp. have reported disappointing sales. Analysts have said that Amazon's sales are something of a bellwether for the rest of the retail industry. If Amazon's margins took a hit from discounting and promotions, other retailers likely had to cut prices even more to compete, affecting their margins too.

To advance its lead over competitors, the retailer touted offerings like free, two-hour shipping on Prime Now orders until midnight Christmas Eve. But that fast shipping likely contributed to the company's shipping costs rising 35% in the fourth quarter to $5.63 billion.

The retail giant also has started laying the groundwork for its own shipping business to add more delivery capacity for the holidays, with the grander ambition of one day hauling and delivering packages for itself, other retailers and consumers. Amazon this week announced it is building its first air cargo hub in Kentucky. It also recently made its debut in the ocean freight sector, handling shipment of goods by ocean to its U.S. warehouses from Chinese merchants selling on its site, taking on a role it previously left to global freight-transportation companies.

Still, executives at traditional freight companies warn it is an expensive business to build from scratch, something that could continue to ding margins.

Also costly is Amazon's continued plan for expansion in the U.S. Last month, Amazon announced i t would create 100,000 full-time jobs by mid-2018, although many of the positions will be at already planned warehouses.

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

February 02, 2017 16:52 ET (21:52 GMT)

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