Amazon’s sales soared in the critical holiday quarter, but fell short of Wall Street expectations as a stronger dollar ate into foreign sales, leading the stock to a tumble in after-hours trading.
Amazon.com is making a lot of money from the cloud. But its booming retail machine drove the company’s revenue past the $100 billion mark last year, which means Amazon is not just the world’s largest e-commerce player, but is also among the biggest retailers of all.
The behemoth, based in Seattle’s South Lake Union area, said Thursday its 2015 sales had reached $107 billion, compared with $89 billion a year ago. That puts it within striking distance of The Kroger Co., the third largest global retailer after Wal-Mart and Costco Wholesale. Wall Street expects Kroger to have brought in $110 billion in sales for its current fiscal year.
Even taking out the $7.8 billion in sales from Amazon Web Services, the company’s fast-growing cloud-computing business, Amazon has surpassed French giant Carrefour, which last year ranked sixth in the National Retail Federation’s list of top global retailers (Amazon then ranked 12th.)
CEO Jeff Bezos acknowledged the milestone in a statement in Amazon’s fourth-quarter earnings report Thursday, which disclosed the breakneck growth, but also fell short of analysts’ profit and revenue expectations, leading to a drop in the stock. Microsoft also reported earnings Thursday.
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“Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift. This year, we pass $100 billion in annual sales and serve 300 million customers,” Bezos said.
The growth underscores the rapid growth of e-commerce, an industry pioneered and still led by Amazon, even as most traditional retail undergoes relative stagnation. Wal-Mart, the world’s top retail dog, announced earlier this month it was closing 154 stores across the U.S.
Despite Amazon’s retail growth, that business is still far less profitable than Amazon Web Services, which accounted for about 41 percent of the company’s profit (and only 7 percent of the revenue.)
Analysts with Conlumino, a retail research firm, say that even compared with other retailers, Amazon’s profitability is “still painfully weak,” earning barely 0.75 cent for every dollar it brings in. But that’s mostly because Amazon plows a lot of cash back into its business.
For example, it’s doing major investments in video and music content to make Prime, the $99-a-year Amazon delivery subscription, more valuable. Last week, it offered Prime members in Chicago a restaurant-delivery service.
The investments are necessary, experts say, because Prime fosters loyalty in a world where consumers have an increasing number of e-commerce options.
The New York Times has reported that Amazon and rival Netflix are so far the top buyers at the current Sundance Film Festival in Utah, and the New York Post said Thursday that Amazon was preparing a streaming music service to compete with Spotify. The company is also investing big on fulfillment and sortation centers to speed up delivery.
On Thursday, Amazon said worldwide Prime memberships had increased 51 percent globally and 47 percent in the U.S.
“Clearly this is a strategy that is working, and it is one that is accepted by the market,” Conlumino said.
The market was not so accepting, however, of the quarterly results Amazon posted Thursday, which widely missed Wall Street expectations. That led shares to drop 13.43 percent, to $550.02, in after-hours trading.
The volatility is not new to Amazon, which generally offers investors very vague guidance of its expected operating income.
Revenue in the fourth quarter reached $35.75 billion, up 22 percent from the same quarter in 2014; that compared with analyst estimates of $35.93 billion.
Amazon said changes in the value of foreign currency, the result of a weakening global economy contributing to the strength of the U.S. dollar, ate into its sales figures abroad. Taking out the $1.2 billion impact of foreign-exchange gyrations, sales would have increased 26 percent.
Quarterly profit reached a record $482 million, or $1 per share, vs. $214 million or 45 cents a share a year earlier. But Wall Street had hoped the giant would report $1.56 per share.
Amazon’s fast-growing cloud-storage and computing-services business, which dominates the market, is becoming even more profitable. It brought $2.4 billion in sales during the quarter, a 69 percent increase from a year ago.
Its profit margin reached 28.5 percent, according to Chief Financial Officer Brian Olsavsky. That’s higher than the 24.8 percent margin expected by analysts with RBC Capital Markets.
The sales figure also means Amazon Web Service has morphed into a business that could generate nearly as much as $10 billion in annual revenue, according to Olsavsky. That’s a 20 percent increase from how the business looked like last October. But the annual rate of growth slowed to 69 percent from 78 percent in the third quarter and 81 percent in the second quarter.
Amazon’s booming growth comes with rising stress on its ability to move items around its network. The company has added thousands of trucks into the U.S. fleet, and is tinkering with the idea of leasing airplanes.
Amazon, through a Chinese subsidiary, even got federal approval to ship ocean freight for other firms. Ryan Petersen, the CEO of Flexport, a customs brokerage that first found out about the freight operation, says Amazon could “generate $100 million of free cash flow very easily” by running shipping from China.
In the earnings call, executives said the company is delving further into logistics to better serve customers at peak times because its existing carriers can’t handle all Amazon’s needs. “It does not mean to replace them,” Olsavsky said.