After Record Holiday Quarter, Amazon Shares Fall on Soft Revenue Projections
Amazon shares sank 5.4 percent Friday to $1,626.53 after its Q4 call suggested soft revenue guidance, slowing gross margin expansion, falling physical store sales and lingering questions about India's e-commerce market. The stock was up as much as 3.4 percent in post-market trading Thursday after a 20 percent year-over-year revenue jump to $72.4 billion, but fell 4.6 percent during the call on revenue guidance.
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Amazon’s holiday season sales were a record; profit grew to $3 billion from $1.9 billion year on year. It projected Q1 revenue will grow 10-18 percent to $56 billion-$60 billion, on unfavorable foreign exchange rates.
Chief Financial Officer Brian Olsavsky cited uncertainty in India due to a government rule change protecting domestic sellers. Amazon will comply with all laws and regulations, “but we're evaluating the situation,” he said. “We've built our business around price, selection and convenience. We don't think the changes help in those dimensions for both the customers in India and also the sellers.”
The company’s “slight top-line miss” was driven by higher-than-expected cost of goods sold, said Wedbush Securities' Michael Pachter, with marketing, technology and content spending driving “the bulk of the miss” relative to the analyst’s estimate. As a percentage of sales, marketing spending rose over comparable 2017 and 2016 quarters, which management attributed partly to Amazon Web Services staff expansion.
The growth drivers Web Services, Fulfilled by Amazon and Prime “appear robust,” said Pachter, despite “modest deceleration.” Amazon added “tens of millions” Prime customers worldwide, through free trial or paid membership, and more customers signed up worldwide in 2018 than ever.
Whole Foods was the primary catalyst behind Amazon's physical store revenue drop of 3 percent year over year, but Amazon Books stores, Amazon Go and Amazon 4-star were contributors, said Olsavsky. Whole Foods lapped a period when Amazon had just bought the chain in Q3, and Amazon adjusted the calendars of the two, adding five days of revenue into Q4, he said. Orders made through the Prime Now app for delivery or pick up at Whole Foods stores are counted as online revenue, he said.
Among highlights for the quarter were Alexa, which doubled the scientists on its research team, said CEO Jeff Bezos. The company improved Alexa’s ability to understand requests and answer questions by more than 20 percent through advances in machine learning. Amazon doubled Alexa skills to over 80,000, and customers spoke to Alexa “tens of billions more times in 2018 compared to 2017,” he said.
Echo was the top selling item on Amazon worldwide. Devices with Alexa built in more than doubled to above 150, including headphones, PCs, cars and smart home products. New Alexa-inside devices announced at CES include the Lenovo Smart Tab and products from First Alert, Jabra, JBL, Kohler, LG and Razer, Amazon said. Some 28,000 Alexa-compatible smart home devices are available from 4,500 brands.
The company highlighted expansion of subscription Prime Video content, including NBA League Pass ($28 per month/$169 per season) and PGA Tour Live ($10 per month/$64 per season). It also cited availability of free video content now available on Fire TV devices via IMDb’s ad-supported Freedive streaming channel.
More than 50 percent of products sold on Amazon stores this holiday season came from small and medium-sized businesses, it said, and third-party sales are growing faster than first-party sales. Some 200,000 small and medium-sized businesses surpassed $100,000 in sales in Amazon’s stores during the year.