On the surface, Amazon's (NASDAQ: AMZN) result report looked like another strong quarter when the company beat both its own guidance and analyst estimates. Revenue increased by 20% to $ 72.4 billion, and earnings per share rose from a regulated $ 2.16 a year ago to $ 6.04.
For most businesses, 20% revenue growth will be worth celebrating, but for Amazon that rate marked its slower top-line growth of more than three years. It has been more than a year since the Whole Foods acquisition, Prime membership is approaching a saturation point, and the company is facing the big numbers law. Amazon's days of devastating growth seem to end.
The growth in e-commerce was actually worse than the 20% overall clip because it was juiced with 45% growth Amazon services in Amazon Web Services (AWS), the company's cloud computing division.
Amazon's North American ecommerce revenue increased by 1
Amazon's direct sales increased only 13% in the quarter, slower than total e-commerce growth in the US. It would usually be a cause for concern, but Amazon is shifting its focus to other businesses, and the need for growth in its core e-commerce segment is down.
Changing the game
With direct sales campaign, Amazon goes on to grow faster-growing high-margin businesses such as its third-party marketplace, AWS, and advertising. Revenue from third-party merchant services jumped 27% to $ 13.4 billion in the fourth quarter, and third-party sellers accounted for 52% of the units sold on Amazon. AWS revenue increased by 45% to $ 7.4 billion, and operating profit increased by 61% to $ 2.1 billion. In its second segment, which mainly consists of advertising, revenue has almost doubled, increasing by 97% to $ 3.4 billion when the company used high demand in the peak season.
Amazon's subscription service revenues, led by Prime, also showed strong growth, up 25% to $ 3.9 billion, but growth was boosted by the price increase for US Prime subscribers, which entered into force in May 2018.
The results of these Other companies show Amazon to reap the benefits of the massive efforts it has made in its fulfillment network and infrastructure needed to run AWS. The main figure increased by only 14% during the year, a sign that the expansion site's expansion has slowed significantly, which has helped exploit the recent revenue growth. It allowed the company to finally deliver significant profits on the bottom line.
The question for investors is now whether Amazon can increase profits fast enough to make up for weakening revenue growth, as the company predicts a sales increase of just 10% -18% in the current quarter. Meanwhile, the company's competitors continue to invest in faster shipping and their own e-commerce infrastructure, and many of the Amazon vendors would like to see another online marketplace challenging its superiority.
Even with a fast growing bottom line, the warehouse remains expensive and therefore vulnerable to any lost expectations. This explains why the Amazon shares were down 5% in ex-post trade, despite the better than expected fourth quarter figures.
John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool's Board. Jeremy Bowman owns shares of Amazon. Motley Fool owns and recommends Adobe Systems and Amazon. Motley Fool has a disclosure policy.