Amazon’s surging revenue growth shows signs of slowing

Years of rapid growth are starting to catch up to the e-commerce giant.

Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Ben Fox Rubin
3 min read

Amazon's Day 1 headquarters building in Seattle

James Martin/CNET

Amazon's years-long, meteoric growth rate may finally be cooling.

The e-commerce company on Thursday reported fourth-quarter revenue of $72.4 billion, up 20 percent and at the top of the company's guidance from October. Earnings surged to $3 billion, or $6.04 a share, handily beating analysts' expectations of $5.67, according to Yahoo Finance.

But guidance for first-quarter revenue was weaker than expected, at $56 billion to $60 billion, below Wall Street expectations of $61 billion. It was the second quarter in a row Amazon predicted softer-than-expected revenue.

Company shares were down less than 1 percent after the market closed.

"We feel we had a really strong fourth quarter," finance chief Brian Olsavsky said on a call with reporters Thursday. "Retail sales were certainly strong."

The company in October predicted weak revenue for the holiday quarter -- its biggest quarter of the year -- though Olsavsky at the time said he expected "a strong holiday season." In December, Amazon said it broke new records for the holidays -- an announcement it tends to make every year -- but didn't offer much as far as details.

Ahead of Amazon's earnings announcement, there were plenty of concerns that the 25-year-old e-commerce phenom was finally starting to act its age. True, the Seattle behemoth keeps hitting at least 20 percent revenue growth quarter after quarter -- a huge success considering Amazon's size -- thanks to its aggressive expansion efforts. But industry watchers expected other factors, like Whole Foods' slower growth, to finally catch up, causing its sales to dip below that 20 percent rate for the first time in over three years, according to data compiled by CSI Market. This time that didn't happen. 

Amazon's healthy growth is still the envy of the retail world, but its slower revenue growth -- which was as high as 43 percent in 2018 -- does signal a broader shift for the company.

For one thing, the law of large numbers is finally starting to apply, making it harder for Amazon to maintain such huge percentage jumps. The company is also working to improve its profitability after years of reinvesting billions of dollars back into the business. That should please Wall Street, but also indicates that Amazon may not pursue as many new projects as it has before -- though there are still plenty.

Also, Amazon's purchase of slower-growing Whole Foods is expected to weigh down its robust growth rate. Added to that, the overhang of CEO and founder Jeff Bezos' plans to divorce, which was announced this month, may cause new turbulence at the company. But so far that hasn't appeared to happen.

On the other hand, the company should benefit from its rapidly growing advertising business, which is focused on getting retailers to pay for ads within Amazon to improve their online sales. With Amazon controlling 50 percent of e-commerce purchases in the US, more sellers have an incentive to fork over money for these ads. In 2018, Google accounted for 37 percent of digital ad spending in the US and Facebook accounted for 21 percent, while Amazon took in just 4 percent, according to eMarketer.

"Fourth quarter results are expected to reveal an ad player that is on its way to eventually challenge Facebook for the No. 2 spot," eMarketer analyst Monica Peart said in a statement ahead of the earnings announcement. "It's also slowly chipping away at search ad dollars that were once going to Google."

The advertising business posted $3.4 billion in revenue, nearly double from a year earlier.

Amazon Web Services-- which provides cloud-computing services to Netflix, Samsung and NASA, among many others --  continued to be another big revenue booster, with the segment posting 45 percent growth.

Olsavsky said on a call with analysts that he expects company spending on things like warehouse space and employees to increase this year after Amazon slowed down its capital spending in 2018. That may drag down Amazon's recent big jumps in profit.

First published Jan. 31, 1: 26 p.m. PT.
Update, 2:14 p.m. PT: More details added throughout. 

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