Amazon Punches Out 20% Increase in Sales and a Record $3 Billion Profit in Q4

Ecommerce giant claims it signed up record number of Prime members in 2018

Jeff Bezos

Amazon topped Wall Street expectations for the fourth quarter of 2018, posting revenue up 20%, to $72.4 billion, and a record net profit of $3 billion.

However, Amazon’s revenue guidance for the first quarter of 2019 was below analyst forecasts, sending the stock down as much as 2% in after-hours trading. The company, which is facing regulatory obstacles in India with the country’s ban on internet retailers from selling products via vendors in which they have an equity interest, said it expects Q1 net sales of between $56 billion and $60 billion (below analyst estimates of $60.8 billion).

For Q4, the ecommerce giant’s net income increased 58%, to $3.03 billion, or $6.04 per diluted share. That’s even more impressive considering that the fourth quarter 2017 included a provisional tax benefit for the impact of the U.S. Tax Cuts and Jobs Act of 2017 of approximately $789 million.

Wall Street analysts on average expected revenue of $71.87 billion and EPS of $5.67 for the fourth quarter of 2018, which marks the critical holiday-shopping period. It was Amazon’s fifth straight quarter reporting over $1 billion in profit. For the full-year 2018, sales increased 31% to $232.9 billion and net income more than tripled, to $10.1 billion.

Amazon claimed that during the holiday quarter, “tens of millions of customers” worldwide started free trials or began paid memberships of its Prime program and that it added a record number of Prime members in 2018. But as has been its practice, the company didn’t disclose a current count for Prime members; Amazon announced in April 2018 that the company had topped 100 million Prime members globally.

The company notched significant advertising gains in Q4, reporting a 95% increase in its “other” category — which primarily comprises advertising services — from $1.74 billion a year ago to $3.39 billion (however, $1 billion of that increase was related to an accounting change under which advertising services are now classified as revenue rather than cost of sales). The Amazon Web Services (AWS) cloud division continued to soar, with revenue climbing 45% to $7.43 billion in the fourth quarter.

Amazon had $31.75 billion in cash and equivalents at the end of 2018, up 55% from $20.52 billion a year earlier. Headcount grew 14% last year, to 647,500 full- and part-time employees.

Amazon founder and CEO Jeff Bezos, as he has done previously, in prepared remarks focused not on financial performance but instead touted the company’s Alexa voice assistant, noting that Amazon’s Echo Dot was the No. 1 best-seller across all products during the holiday season.

“The number of research scientists working on Alexa has more than doubled in the past year, and the results of the team’s hard work are clear,” Bezos said in prepared remarks, noting that customers spoke to Alexa “tens of billions more times in 2018 compared to 2017.”

On the video front, Amazon called out the December launch of Prime Video on Comcast’s Xfinity X1 in the U.S., as well as IMDb’s launch earlier this month of free, ad-supported VOD service Freedive.

Amazon CFO Brian Olsavsky, on the Q4 earnings call, declined to quantify the company’s spending on Prime Video but noted it has been increasing and that Amazon expects it to increase further in 2019. He added that Amazon continues to see strong usage of Prime Video, boosting Prime renewal rates and engagement.

In announcing results, Amazon also highlighted awards recognition for Amazon Studios. That includes film “Cold War,” which nabbed three Oscar nominations (for foreign-language film, director for Pawel Pawlikowski, and cinematography for Lukasz Zal). The company noted that Amazon Studios had 10 Golden Globe Awards nominations and won two, with Rachel Brosnahan picking up the trophy for actress in a TV comedy or musical for “The Marvelous Mrs. Maisel” for the second year in a row and Ben Whishaw winning supporting actor in a series, limited series, or made-for-television movie for his role in “A Very English Scandal.”

Last November, Amazon announced its “HQ2” plans for a second base of operations in North America would be split between Long Island City, in the New York City borough of Queens, and the Crystal City neighborhood in Arlington just south of Washington, D.C. That came after a 14-month public contest in which 200 cities vied to grab the brass ring dangled by the ecommerce company, which said it expects to invest $5 billion and create up to 50,000 jobs for the New York and Northern Virginia campuses. Amazon’s picks generated controversy, as some critics and politicians knocked the nearly $2.1 billion in tax incentives it was awarded.