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Amazon surprises Wall Street with a blowout holiday quarter

The company also reveals it now has over 150 million paid Prime members.

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- 03:49
Amazon CEO Jeff Bezos

Jeff Bezos, at the 70th International Astronautical Congress in Washington DC in October, is now worth even more money.

Mandel Ngan/AFP via Getty Images

It's OK if you got motion sickness from following Amazon's earnings reports over the past year.

Case in point: The e-commerce heavyweight's profits crashed in the second and third quarters of 2019, following a heady string of record earnings. And just when profits seemed to be on their way down, they're right back up again in the fourth quarter, just shy of the company's all-time quarterly record.

Amazon's stock jumped on the better-than-expected earnings and sales for the all-important holiday quarter, which Amazon reported Thursday afternoon. Shares surged 11% in after-hours trading.

To add to the good news, the company revealed it now has over 150 million paid Prime members globally, up from over 100 million, which it reported in April 2018.

Amazon's latest quarterly results come as Wall Street continues to be heavily focused on the company's revenue growth as a primary metric to judge its success. While that metric has been a source of strength for Amazon for years, it's become harder for the company to maintain hefty percentage gains since it's now so big, even as it's pushed into new fields like health care, robotics, groceries and film production. 

Sales growth in 2017 and 2018 was just above 30% -- a huge figure for such a large company. For 2019, Amazon said Thursday it hit sales growth of 20%, which is low compared to Amazon's past years but well ahead of most other retailers.

Amazon has worked to boost sales by spending billions of dollars shifting its Amazon Prime shipping program in the US from two days to just one. While expensive, that effort helped Amazon post its best revenue growth in a year, at 24%, during the third quarter.

Amazon finance chief Brian Olsavsky said on a call with reporters Thursday that investment costs for one-day shipping came in slightly lower than than the $1.5 billion he expected in the fourth quarter. He predicted those costs will hit $1 billion in the first quarter. He didn't offer much more detail on what the rest of the year would look like, but said investments should continue.

"We are getting more efficient as we go," Olsavsky said about the move to one-day shipping.

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For the fourth quarter, Amazon reported income of $3.3 billion, or $6.47 per share, easily outpacing expectations of $4.03 a share from analysts polled by Yahoo Finance, and 8% higher from the year earlier. That gain came largely from the Amazon Web Services cloud-computing business, which is the company's primary profit center. 

"AWS sales grew over $2.5 billion for the quarter, which is larger than the overall annual size of most cloud company's revenue," said Patrick Moorhead, founder of analyst firm Moor Insights and Strategy. 

Overall sales rose 21% to $87.4 billion, beating Wall Street estimates and the company's own guidance.

Amazon said Thursday it expects revenue of $69 billion to $73 billion in the first quarter, in line with analysts' predictions of $71.6 billion.

While these latest financial numbers are positive for the company, Amazon also faces pressures seemingly from all sides. It's dealing with criticism from several internal activist groups and a newly formed outside organization called Athena, which are pushing for more efforts on climate change, better working conditions at warehouses and a moratorium on Amazon working with US immigration authorities. 

CEO Jeff Bezos is again embroiled in an international phone hacking saga involving Saudi Arabia's Crown Prince Mohammad bin Salman. Meanwhile, Amazon is under investigation by government officials for potential monopolistic practices.

While these ongoing problems have tarnished Amazon's reputation, the company's stock and financials haven't seemed to be impacted by them, with sales growth remaining Wall Street's main interest.

Amazon's employee headcount rose to 798,000 from 750,000 in the third quarter, with more people hired to help with one-day shipping and the Alexa software team. Shipping costs surged 43%, driven in part by the investment in one-day shipping.