Amazon soars after huge earnings beat

Key Points
  • Amazon reported fourth-quarter results on Thursday that smashed analysts' expectations. 
  • The company's profits rebounded during the quarter, while revenue climbed 21% year over year. 
  • The outperforming results show Amazon's big investments in one-day delivery are paying off.
Amazon Q4 earnings: $6.47 EPS vs. $4.03 estimated
Amazon Q4 earnings: $6.47 EPS vs. $4.03 estimated

Shares of Amazon climbed as much as 11% in extended trading on Thursday after smashing earnings expectations for the fourth quarter.

The company's market cap surged above $1 trillion after hours on the back of the powerhouse earnings report. In doing so, it joined Apple, Alphabet and Microsoft, which have all crossed the trillion-dollar threshold. Amazon first reached a $1 trillion market cap in September 2018.

Here are the key numbers:

  • Earnings per share: $6.47 per share vs. expectations of $4.03 per share, according to analysts surveyed by Refinitiv
  • Revenue: $87.44 billion vs. expectations of $86.02 billion, per Refinitiv
  • Amazon Web Services: $9.95 billion vs. expectations of $9.81 billion, according to FactSet

Revenue grew 21% to $87.44 billion for the quarter, which indicates the company's investments in speedier shipping are leading to more purchases. Last quarter, Amazon claimed customers shopped at record levels during the holiday season and said it quadrupled both one-day and same-day deliveries over the period.

The company also gave upbeat guidance for the first quarter, saying it now expects to report revenue between $69 billion and $73 billion. Amazon CFO Brian Olsavsky told CNBC's Josh Lipton that the company doesn't "have any visibility" on whether the coronavirus will impact its first quarter results. Many U.S. companies have warned the deadly virus could weigh on their business, while others such as Google have limited operations in China, where the majority of cases have been reported.

In the earnings release, Amazon CEO Jeff Bezos said "more people joined Prime this quarter than ever before" and that the company now counts more than 150 million paid Prime members around the world. Amazon last gave an update on Prime subscribers in April 2018, saying it had more than 100 million members in the program.

As expected, Amazon's worldwide shipping costs increased significantly during the quarter, climbing 43% year over year to $12.9 billion. The company said in its last earnings report in October that it would spend $1.5 billion during the holiday shopping season to expand one-day and same-day delivery.

On the earnings call, Olsavsky said costs associated with rolling out the program came in "slightly under" $1.5 billion during the fourth quarter. Amazon will spend $1 billion more on the initiative in the first quarter and "again in [the second quarter] we'll start to lap this," Olsavsky added. He expects the costs to become more efficient as delivery volume grows alongside new transportation modes, such as additional routes and zip codes.

Despite Amazon's growing investments, the company's net income rebounded during the quarter. Its net income grew 8% year over year to $3.27 billion, which topped analysts' expectations of $2 billion. Amazon's net income slid 26% during the third quarter as a result of costs tied to ramping up one-day delivery.

Amazon's subscription services revenues have climbed steadily over the past several quarters. Revenue from subscription services, which includes Prime membership fees, as well as Music Unlimited and Prime Video Channels, came in at $5.24 billion for the quarter, up 32% from the year-ago period. In the earnings release, Amazon said Music Unlimited subscribers grew more than 50% in 2019.

Aside from retail, Amazon's cloud business reported $9.95 billion in sales, up 34% from the year-ago quarter. That beat analysts' expectations of $9.81 billion, but it was still a slight deceleration from the third quarter, when Amazon Web Services (AWS) saw revenue growth of 35%. AWS operating income was $2.6 billion, up 19% from the year-ago period and above consensus estimates of $2.45 billion.

Amazon's "other" category, which is primarily made up of its advertising business, generated $4.8 billion in revenue during the quarter, which is a 41% increase from the year-ago period.

Amazon's physical-store sales, which is mainly comprised of Whole Foods, saw its revenue decline 1% year over year to $4.36 billion.

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