In its Prime: What you need to know about Amazon’s latest earnings figures

2 Feb 2018230 Views

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Amazon Prime package. Image: Jeff Bukowski/Shutterstock

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Amazon exceeds market expectations with record profits.

Amazon shares jumped 6pc in after-hours trading following the release of its report for the final quarter of 2017.

Profits got a welcome boost from a $789m tax benefit thanks to new legislation passed in the US in December, as well as cloud services arm Amazon Web Services (AWS), new Prime members and voice-activated device sales.

Q4 profits leapt to $1.9bn from $749m in the previous time period for 2016.

Its sales jumped 38pc year on year, hitting $60.5bn in Q4 of 2017, compared with $43.7bn in the same time period in 2016. Operating income increased 69pc to $2.1bn in the fourth quarter in comparison to $1.3bn in Q4 of 2016.

In terms of the entirety of 2017, net sales increased 31pc to $177.9bn compared to $136bn in 2016. Net income for Amazon was $3bn compared with $2.4bn for 2016 and operating income for 2017 landed at $4.1bn.

Alexa doing well

CEO Jeff Bezos said he was pleased with the progression of Alexa in the market. “Our 2017 projections for Alexa were very optimistic, and we far exceeded them. We don’t see positive surprises of this magnitude very often – expect us to double down.

“We’ve reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers, customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa and we’re seeing strong response to our new far-field voice kit for manufacturers.”

Prime members on the increase

More new members signed up to Amazon Prime than in any previous year of the premium offering’s existence, and the company said more than 5bn items were sent globally using the service in 2017.

The holiday period was a particular success for Amazon, with more than 4m people signing up in a particular single week during Q4. Amazon previously said its Prime subscribers are its “most important customer base” and, with growth like this, it is a trend that looks set to continue.

Operating margins in North America jumped to 4.5pc during the fourth quarter due to very strong advertising sales. Amazon’s logistics revenues increased 41pc from a year ago due to growing demand for logistics services from third parties such as shipping and warehouse facilities.

While it remains focused on cutting costs, Amazon made the decision to acquire Whole Foods last year. It paid off, as the grocery chain brought in $4.5bn in revenues to Amazon’s top line, and many Whole Foods stores feature automated lockers where customers can pick up their Amazon orders.

CFO Brian Olsavsky told the Financial Times that Amazon would continue to boost staff numbers, which hit 566,000 at the end of 2017. “The best thing we can do for our customers is hire workers,” Olsavsky explained.

Cloud services is the clincher

The key growth area for the company is AWS. Sales for Q4 skyrocketed 45pc compared to 2016’s figures, and $1.3bn in operating income is credited to the company’s cloud business – 64pc of its total operating income.

Amazon is likely to continue its pattern of heavy investment in the future and its total costs reflect this, increasing by 38pc for Q4 year on year.

The company is also seeking a location for its second headquarters, with several US cities in the running. Expect to see even more spending as 2018 rolls on.

Amazon Prime package. Image: Jeff Bukowski/Shutterstock

Ellen Tannam is a writer covering all manner of business and tech subjects

editorial@siliconrepublic.com