Amazon tops Wall Street's holiday expectations, but offers weak sales guidance (AMZN)

Jeff Bezos

Amazon beat Wall Street's expectations with its fourth-quarter results.
But the company said its first-quarter sales won't match analysts' forecasts.
Amazon's results were boosted by its cloud-computing business.

Amazon's holiday results topped Wall Street's heady expectations, but the Seattle company warned that it might not do the same in the first quarter.

Company officials also cautioned investors to expect increased spending this year compared to last year in terms of investments in fulfilment centers and data centers and increasing its employee base.

"I would expect those investment to increase relative to 2018," said Brian Olsavsky, Amazon's chief financial officer, on a conference call with investors.

Investors initially seemed to take Amazon's report in stride, with the company's shares little changed in after-hours trading immediately following the report. But shareholders seemed to sour on the results following news of the stepped-up investments. After the company's conference call with investors, the stock was off $76.34, or 4.4%, to $1,642.39.

"We have such skeptical environment when it comes to tech," said Dan Morgan, a senior portfolio manager at Synovus Trust, which owns Amazon shares. "If [companies] don't hit every single metric they've got out there ... then [investors] are like, 'this isn't a good report.'"

Here's what Amazon reported and how it compared with Wall Street's expectations and the company's results a year earlier:

Fourth-quarter (Q4) revenue: $72.4 billion. Analysts had forecast $71.92 billion. In the same period in 2017, Amazon posted sales of $60.45 billion.
Q4 EPS: $6.05. Wall Street had predicted $5.55. In the fourth quarter a year earlier, the company earned $3.75 a share.
First-quarter (Q1) revenue (company guidance): $56 billion to $60 billion. Analysts had forecast $60.99 billion. In the first quarter last year, Amazon saw sales of $51.04 billion.
Q1 EPS (guidance): Amazon didn't offer specific EPS guidance, but it predicted it would post operating income of between $2.3 billion and $3.3 billion. Wall Street had forecast $2.99 billion in operating income for the quarter and $4.43 a share in profit before the report. In the same period of 2018, the company posted $1.9 billion in operating income and earned $3.27 a share.

Amazon's cloud and advertising businesses drove its results

Amazon's results were boosted yet again by its cloud-computing business. Sales at Amazon Web Services jumped 45% from the period a year ago to $7.4 billion. The unit posted $2.2 billion in operating income, which was more than two-thirds of the entire company's total profit and was up nearly 61% from the fourth quarter of 2017.

The company also saw continued strong growth from its advertising business. Amazon's "other" revenue, which mostly consists of ad sales, hit $3.4 billion in the quarter, up 95% from the same period a year earlier. Growth in the business did slow, though, from the torrid pace the company was on in the prior three quarters, when sales grew by at least 123% year-over-year in each period.

The news from the company's retail businesses was more mixed. The company's direct online sales grew 13% in the quarter from the period a year ago, and its sales through its physical stores — mostly from its Whole Foods chain — fell 3% year-over-year.

Meanwhile, its North American business — which mostly consists of its retail sales but also includes its advertising unit and its business of selling goods on behalf of third-party vendors — grew 18% to $44.1 billion. Its international retail business grew just 15%.

However, the operating profit of Amazon's North American business grew 33% to $2.3 billion. And the operating loss of its international business, long a money loser, shrank by 30% to $642 million.

Amazon's shares closed regular trading Thursday up $48.30, or 2.9%, to $1,718.73.

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