Amazon's Profit Exceeds Target -- WSJ
February 03 2017 - 3:02AM
Dow Jones News
By Laura Stevens
Amazon.com Inc.'s revenue growth and investments have for years
come at the expense of profit. Now, the retail giant appears to
have exhibited more discipline to preserve its bottom line.
The Seattle-based retail giant on Thursday said fourth-quarter
profit jumped 55% to $749 million, topping the company's own
guidance. On the other hand, revenue increased 22% to $43.7
billion, hitting the midpoint of Amazon's target, and below
analysts' expectations.
"There's always a number of things that can impact customer
spending, both positively and negatively during any quarter," said
CFO Brian Olsavsky on a conference call. "What we do, is continue
to focus on the things we can directly control: for us that's
price, selection, customer experience. And on those dimensions we
felt we made great progress."
Many retailers resorted to heavy promotions during the critical
holiday season last year. As a result, traditional brick-and-mortar
chains ranging from Target Corp. to Macy's Inc. have warned on
profits and reported disappointing sales.
Amazon said promotions -- which Mr. Olsavsky called "a cost of
doing business" -- weren't a major factor in fourth-quarter
revenue.
Amazon's stronger margins likely reflect more discipline in
spending and fewer promotions at the expense of profit, as well as
a larger percentage of sales stemming from its third-party sellers,
analysts said. Those sales are nearly pure profit margin because
Amazon doesn't have to buy and hold the product itself. It also
gets paid for items that sellers ship in for Amazon to fulfill.
The company has "plenty of runway to continue with the present
investment cycle," said Charlie O'Shea, lead retail analyst at
Moody's Investors Service.
Amazon's stock was trading down more than 4% after-hours
Thursday on disappointing fourth-quarter revenue and
softer-than-expected guidance for the first quarter.
Amazon often has bucked retail trends by dominating online
sales. It commanded an estimated 42% of total holiday online
spending growth last year, according to Slice Intelligence, which
analyzes customer receipts. Apple Inc. was second, accounting for
5% of holiday e-commerce growth.
Growth and investments have been Amazon's priorities since it
was a startup. In his first letter to shareholders in 1997, Chief
Executive Jeff Bezos declared that his strategy for creating
shareholder value prioritized customer and revenue growth "because
we believe that scale is central to achieving the potential of our
business model."
But the Amazon's streak of seven profitable quarters -- with a
big jump in the most recent period -- may come under pressure as
the company enters a heavier period of investment.
Last month, Amazon pledged to create 100,000 full-time jobs in
the U.S. by mid-2018 -- a tip of the hat to President Donald
Trump's employment drive. That would require building many more
warehouses, some of which have been planned or announced.
Moreover, the retail giant 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,
according to people familiar with the matter.
Amazon this week announced it is building its first air cargo
hub in Kentucky, a $1.5 billion project. It also recently made its
debut in the ocean-freight sector, handling shipment of goods to
its U.S. warehouses from Chinese merchants selling on its site. It
is taking on a role it previously left to global
freight-transportation companies.
Those investments come in addition to Amazon's branching out
into industries other than retail, including web services,
smart-home devices and music and video content. It recently became
the first tech company to receive an Academy Award nomination for
Best Picture.
Amazon is reaping the rewards of one project it has plowed money
into: Prime, its $99 annual membership program that includes perks
such as free, two-day shipping, and music and video content.
Mr. Olsavsky, noting the tens of millions of customers who
joined Prime last year, said, "We're pleased with the results we're
seeing."
Write to Laura Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
February 03, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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