Amazon Q4 profit surges, but sales fall short

Amazon had a very good holiday, but wasn’t quite as stellar as the Street predicted.



The retail giant’s net sales increased 22% to $43.74 billion in the fourth quarter, lower than analysts had expected. The company’s outlook for the fourth quarter also fell short of expectations.



Net income, however, surpassed analysts’ estimates, and jumped to $749 million, compared to $482 million in fourth quarter 2015.



"Amazon’s growth remains impressive, and is a long way above the retail sector overall, but by the high benchmark it has set, the latest numbers have a certain softness,” commented Anthony Riva, analyst at GlobalData Retail. "Part of the softness comes down to shipping related revenue, which grew by its slowest pace in over a year. This has placed a little downward pressure on the revenue line. Arguably, low cost and fast delivery are a fundamental part of Amazon’s appeal to consumers. However, they are also its Achilles' heel – and with Prime becoming more popular, and with a greater focus being put on speedier shipping times, we have concerns that Amazon could see further profit erosion as it enters its new fiscal year. This view is supported by Amazon’s own guidance for the next quarter, which suggests profit will come in well below last year.”



Amazon’s Web Services (AWS) cloud business continues to grow and to provide a major boost to the company’s bottom line. AWS sales rose 47% to $3.54 billion in the quarter, with an operating profit of $926 million.



For the year, net sales increased 27% to $136.0 billion, compared with $107.0 billion in 2015. Net income was $2.4 billion, compared with $596 million in 2015.



Prime members — and their access to more merchandise quicker — were strong contributors of these increases.



“Prime members can now choose from over 50 million items with free two-day shipping — up 73% since 2015,”stated Jeff Bezos, Amazon founder and CEO. “Prime Now added 18 new cities, which means millions more members now get one and two hour delivery.”



Looking ahead to fiscal 2017, Amazon expects its net sales to be between $33.25 billion and $35.75 billion. Analysts, on average, were expecting sales of $35.95 billion in the first quarter.



“As much as this quarter has been more subdued, Amazon remains firmly on the front foot in terms of innovation,” said analyst Riva. "This alone will continue to make it a retail outperformer, at least in sales terms, over the next year and beyond."