business news in context, analysis with attitude

Amazon said yesterday that its Q4 net sales increased 20% to $72.4 billion, compared with $60.5 billion in the fourth quarter of 2017. Operating income increased to $3.8 billion in the fourth quarter, compared with operating income of $2.1 billion in fourth quarter 2017.

Net income increased to $3.0 billion in the fourth quarter, compared with net income of $1.9 billion, in the fourth quarter of 2017.

For the full 2018 fiscal year, Amazon said that “net sales increased 31% to $232.9 billion, compared with $177.9 billion in 2017. Operating income increased to $12.4 billion, compared with operating income of $4.1 billion in 2017. Annual net income increased to $10.1 billion, compared with net income of $3.0 billion in 2017.

The Los Angeles Times notes that “the fourth quarter offered investors the first glimpse of year-over-year results since Amazon’s $13.7-billion acquisition of Whole Foods Market in 2017. Sales in physical stores, which are predominantly Whole Foods locations, decreased 2.7% to $4.4 billion. In-store pickups of online grocery orders don’t count as physical store sales, further clouding the ability to track the performance of Amazon’s grocery push. The online retailer’s bricks-and-mortar strategy also includes bookstores and a cashierless convenience store called AmazonGo, which lets customers check in with a smartphone app and be charged automatically based on what they remove from the store.”

Other analysis:

The New York Times: Amazon held off stiffer competition for online shoppers during the holiday season, once again increasing its sales. But the company said on Thursday that growth slowed from its usual breakneck pace — and it came at a cost, with the company spending far more on shipping to win customers. While strong, the latest quarterly results suggested that Amazon’s retail business not only faces more competition, it is also maturing … The company is compensating for slowing growth in e-commerce by expanding its fast-moving, highly profitable cloud and advertising businesses.”

The Financial Times: “Amazon signalled that it would be ramping investment back up in 2019, even as its stellar revenue growth slows, sending its shares lower … Investors have long accepted scant profits from Amazon as its sales soared and it funnelled money into everything from warehouses and data centres to drones, freight planes, and international expansion. More recently, the company has shown strengthening profitability, however, boosted by its push into high-margin cloud computing and advertising.”
KC's View:
No question that Amazon’s business is maturing and evolving.

Digiday has a story today about how Amazon, having figured out that it “makes more money letting other people sell to customers on its marketplace than it does selling to customers itself,” has shifted its strategy and “has been opening up more e-commerce features and capabilities to third-party sellers that were once reserved for wholesale vendors, and shifting resources to be more hands-on with third-party sellers.”

The story goes on: “According to eMarketer data, Amazon’s marketplace accounts for more overall sales than direct, and the gap is widening. In 2017, direct sales grew 21 percent to $70.4 billion, while marketplace sales grew 41 percent to $129.5 billion. This year, eMarketer forecasts that marketplace sales will increase to $230 billion. And, due to higher margins, Amazon makes more revenue from the marketplace although inventory sold there isn’t the majority: The company reports that the marketplace accounts for more than 40 percent of all units sold.”

My point is this. Among the things that Amazon is best at - maybe better than any other company - is reinvention and disruption from within. It isn’t like you can look at any of this stuff and say, “Well, they’re screwed now. The Amazon era is coming to an end.”

In fact, just the opposite. Amazon always has known that as it business grew, competition would become more intense, not less so. It is built for that. Sure, there will be valleys and bumps, but there also will be progress and momentum.