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  Technology   In Other news  01 Feb 2019  Amazon sales outlook falls short after record holiday quarter

Amazon sales outlook falls short after record holiday quarter

REUTERS
Published : Feb 1, 2019, 11:17 am IST
Updated : Feb 1, 2019, 11:17 am IST

The outlook overshadowed Amazon’s record sales and profit during the holiday season.

Net income jumped 63 percent to USD 3 billion for the fourth quarter, ahead of analysts’ estimates.
 Net income jumped 63 percent to USD 3 billion for the fourth quarter, ahead of analysts’ estimates.

Amazon.com Inc on Thursday forecast first-quarter sales below Wall Street estimates, warning that new regulations in India had created uncertainty around one of its key growth markets and saying it would step up investments in 2019.

Shares of the company fell 5 percent to USD 1,635 after the bell.

The outlook overshadowed Amazon’s record sales and profit during the holiday season. Fast and free shipping helped the world’s largest online retailer boost revenue by 20 percent. A lucrative cloud computing business, as well as fees that merchants pay Amazon to ship and advertise their products, has fattened the company’s once-thin profit margin.

Net income jumped 63 percent to USD 3 billion for the fourth quarter, ahead of analysts’ estimates.

Yet investors focused their attention on Amazon’s international operation, where the company has long lost money in the hopes of future profit. Though its international operating loss shrunk to USD 642 million in the quarter from USD 919 million a year earlier, new regulations in India are poised to take a toll. The rules seek to protect local businesses by prohibiting foreign e-commerce companies from selling products via vendors in which they have an equity interest.

Brian Olsavsky, Amazon’s chief financial officer, said on a call with reporters that the “situation in India is a bit fluid right now.”

The company began removing a wide array of products from its India website late on Thursday to comply with the new foreign investment curbs that kick in on Feb. 1, Reuters reported.

Still, Olsavsky said, “India remains a good long-term opportunity.”

Colin Sebastian, an analyst at Baird Equity Research, said, “The issues in India are taking a toll on the Q1 outlook, even as growth overall slows domestically. Not a bad report, but there are enough questions where (the) stock will likely be under pressure.”

The company forecast net sales of between USD 56 billion and USD 60 billion for the first quarter, missing analysts’ average estimate of USD 60.77 billion, according to IBES data from Refinitiv.

The guidance includes two percentage points of negative impact from changes in currency exchange rates.

Olsavsky said that investments would increase this year. The company had little need to splurge in 2018 thanks to prior spending on warehouses, headcount and other areas, boosting profit. But this year investments will rise, though Olsavsky did not detail where or how much.

“As a result, the profit story in ‘19 may not be as good as it was in ‘18,” said Tom Forte, analyst at D.A. Davidson, adding that this might not be a bad thing.

“If they are stepping on the accelerator, that means they like what they’re seeing, and it’s worthy of more investment,” he said.

Amazon forecast operating income will be between USD 2.3 billion and USD 3.3 billion this quarter, compared with USD 1.9 billion a year earlier.

A large chunk of the company’s hiring has gone to Amazon Web Services, its lucrative business selling data storage and computing power in the cloud. Revenue for the unit surged 45.3 percent to USD 7.43 billion, beating an average estimate of USD 7.26 billion.

Overall, net sales for the fourth quarter were USD 72.38 billion and beat analysts’ average estimate of USD 71.87 billion on the back of a strong holiday season, which includes the major US shopping event Black Friday.

The results demonstrate that Amazon continued its “relentless assault” on other retailers over Christmas, Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, said.

Amazon said tens of millions of shoppers signed up for its loyalty club Prime during the season - more than in any prior quarter - helping boost revenue from subscription fees 25 percent to USD 4.0 billion. The company said last year it has more than 100 million Prime members globally.

This expansive customer base has lured merchants to sell goods on the company’s marketplace, to the point where more than half of products sold on Amazon come from third-parties.

Making Amazon more profitable still are ad sales. The company now ranks alongside Alphabet Inc’s Google and Facebook Inc as titans in marketing, letting these same merchants pay for high placement in Amazon’s search results.

Ad sales and “other” revenue jumped 95 percent to USD 3.4 billion in the fourth quarter.

Tags: amazon, sales, fourth quarter, google, facebook