Amazon.com Inc. defied its own disappointing forecast and returned to earnings growth in the holiday quarter with more than $3 billion in profit. Sending shares soaring toward a $1 trillion valuation in the extended session Thursday.
Shares soared as much as 13% in after-hours trade, putting the online retailer back in the $1 trillion market capitalization club. If the share gain holds on Friday, it will be the biggest daily jump for Amazon since October 2017.
Amazon also forecast operating income of up to $4.2 billion in the current quarter, down from $4.4 billion the year prior. Still, that appeared to assuage investor concerns about Amazon’s continued spending on fast delivery, which could have erased windfalls from e-commerce, advertising and cloud computing sales.
“We’re past the worst in terms of the margin pressure from the one-day shipping initiative,” said Atlantic Equities analyst James Cordwell. That and the “massively overstated” concerns about cloud competition rebutted some of the biggest arguments against buying the stock, he said.
150 Million Paid Prime Members
Amazon Chief Financial Officer Brian Olsavsky told reporters that additional investment in one-day shipping came slightly under the $1.5 billion the company had forecast for the fourth quarter, despite more customer orders. Extra costs in the current period will be about $1 billion for the delivery effort, he said.
Olsavsky added that spending on video would rise going forward, but the company was still determining its overall level of investment for 2020.
Jeff Bezos, Amazon’s chief executive, said in a statement that the world’s biggest online retailer now has more than 150 million paid members in its loyalty club Prime, a 50% increase from its last disclosure in April 2018.
Subscribers keep returning to Amazon to benefit from perks like fast delivery, television and music streaming. Its suite of voice-controlled Echo speakers has prompted still more engagement from customers, and grocery orders more than doubled in the holiday quarter in a vote of confidence for Amazon’s 2017 bet to buy Whole Foods Market.
This formula has helped make Bezos the richest person in the world
Amazon is hoping that cutting delivery times to one day for Prime members will let it outmaneuver rivals such as Walmart Inc (WMT.N) that have marketed two-day shipping without subscription fees. The company made progress in the holiday season, reporting that it quadrupled one-day and same-day deliveries over the year-ago quarter.
Revenue from subscription fees grew 32% to $5.2 billion for the quarter ended Dec. 31, Amazon said, as more shoppers signed up for Prime than in any period prior.
Net sales rose 21% to $87.4 billion while net income rose 8% to $3.3 billion – each over $1 billion more than analysts had expected, according to IBES data from Refinitiv.
The profit rise reflects the evolving nature of Amazon’s business. The company has been moving away from low-margin retail toward a marketplace model where it takes lucrative fees for shipping and advertising the products of other merchants on its platform.
This has helped weather massive spending at Amazon, a company that has long passed up short-term results in favor of bets that could reap it future profit.