With fourth quarter earnings way above Wall Street estimates, e-commerce giant's stock was up more than 10 percent or $203 during after-hours trading on Thursday, January 30th, ultimately reaching market value that is over $1 trillion on Tuesday, February 4. As of 2018, its stock underperformed as investors were concerned about its heightened spending and AWS slowing growth.
But the fifth time was the charm and Amazon.com, Inc. AMZN has now joined Apple Inc APL, Microsoft Corporation MSFT and Alphabet Inc's Google GOOG as a fourth member of the $1 trillion club.
Fourth Quarter Earnings
Earnings per share were $6.47, beyond topping expectations of $4.04 per share. Revenue amounted to $87.4 billion exceeding expectations of $86.0 billion. But more impressively, revenues increased 20.8% comparing to last year, and this acceleration is even more impressive when we consider the softer than expected US spending that was released on January 30th by the Bureau of Economic Statistics. AWS delivered by growing 34 percent from the year-ago period, achieving revenue of $9.9 billion, also topping estimates of $9.8 billion.
However, not all is black and white as this growth rate is in fact the weakest since the company started disclosing this information in 2015. Therefore, the intense pressure from competitors, the other tech titans, Microsoft and Google are taking a toll on the once e-commerce emperor.
Blockbuster Quarter Managed To Diminish Poor Forecasts
AWS did the ‘heavy lifting' as it contributed about 67% of the company's operating income of $3.88 billion for the quarter. But the so-called ‘other segment' that largely consists of advertising business impressively grew 41% to $4.8 billion but physical store sales, Whole Foods included, dropped to $4.4 billion, which is only a 1 percent decrease. Overall, in a time when investors seemed to have lost hope as the company's costs were rapidly increasing, Amazon chose the perfect time to remind them of what it is capable of.
Efforts Have Paid Off
Wall Street expected that Amazon's heavy investment over the past year will be quite a blow to its profitability. It was quite an investment indeed as the company had spent $3 billion to shorten its standard delivery time to a single day and grow its AWS cloud business. But with revenue bouncing back 21 percent on a year over year basis and earnings greatly exceeding expectations, it is safe to conclude that Amazon's strategy is paying off in a big way.
Moreover, Amazon's CFO even added that they spent less than the $1.5 billion expected during the latest quarter because the company got smarter with the way it uses its shipping infrastructure. Then again, the quicker delivery program resulted in a record shipping cost of $12.9 billion for the quarter, up 43% year over year. Still, the quicker delivery program did result in a record shipping cost of $12.9 billion for the quarter which is up 43% year over year.
When looking at its competitors, one of the best performers this year, Target Corporation TGT had a negative surprise mid-January with same store holiday sales underwhelmed analyst targets. This drop was supposedly due to weaknesses in the toy and electronics categories. However, some analysts didn't see anything alarming about that considering that the holiday season was 6 days shorter this year and Amazon's competitor did have eight straight quarters of comparable sales growth. But this shows that Amazon has by far excelled with this quarter results, both its competitors and the economy.
As Wall Street expected with its estimate of $71.6 billion, revenue guidance for the first quarter of the new fiscal year 2020 came in the range between $69 billion to $73 billion. Amazon succeeded in something far greater besides the fact it outperformed and gained the $1 trillion club membership. It excelled in both top and bottom lines in a weakened macroeconomic climate, putting on display its strengths at best.
By the looks of it, Amazon has set the stage for quite an outperformance in 2020 and it seems that it could also renew its growth story.
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