What surprised investors this quarter was how profitable Amazon’s operations were. For the first time, quarterly profit topped $1 billion.
The holiday shopping season gave Amazon the gift of a record profit, with the retail juggernaut posting $1.9 billion in net income during the final three months of 2017. Sales of $60.5 billion were also a record.
Amazon’s stock climbed sharply in after-hours trading Thursday after the release of the Seattle’s company’s quarterly results, which easily surpassed Wall Street’s expectations.
Sales growth is no surprise. But Amazon has a reputation for plowing cash back into expanding its footprint, and investors have grown accustomed to slim profits each quarter as they hope for a windfall down the line.
What surprised investors this quarter was how profitable Amazon’s operations were. For the first time, quarterly profit topped $1 billion, as Amazon captured a growing share of consumer spending and reaped the rewards of years of investment building out a logistics network to get goods to consumers quicker and cheaper.
Operating income generated by Amazon’s North American retail segment, its biggest by revenue, more than doubled from a year earlier. The unit’s operating margin widened from 3.1 percent a year ago to 4.5 percent, the highest in data going back to 2014.
Chief Financial Officer Brian Oslavsky attributed that strength, in part, to smooth operations at the company’s fast-growing warehouse network. Amazon has been placing depots closer to major cities around the U.S., an effort to more efficiently deliver packages to customers.
“Not that many years ago, as a Connecticut resident, I was getting packages [shipped] from Arizona,” said Tom Forte, an analyst with D.A. Davidson. “Those packages are now coming from New Jersey and Pennsylvania. They’re saving a ton of money.”
Measured by the square footage of its warehousing and sorting depots, Amazon’s network was 30 percent larger in 2017 than the previous holiday season.
There are “a lot of moving parts and things that can go sideways” during the final three months of the year, Oslavsky said on a call with reporters. Amazon benefited, he said, from an absence of major storms that can slow shipping. “It was just a very, very strong quarter from that respect,” he said.
Amazon’s growing advertising business also gave the company a boost, he added.
For the full year, Amazon pulled in $177.9 billion in revenue, up 31 percent from 2016, and double the company’s total in 2014. Net income was $3 billion, up 28 percent from a year earlier.
The strong financial results provided a fitting end to a year that saw Amazon entrench its dominance in U.S. online retail sales, build on its early lead in digital-assistant software with Alexa and Echo-branded devices, and dive into brick-and-mortar retail with the $13.5 billion purchase of Whole Foods Market.
Meanwhile, Amazon Web Services, which rents computing power and software tools to businesses, continued to churn out cash, providing the company with flexibility to continue investing. AWS sales during the fourth quarter rose 44 percent from a year earlier, to $5.1 billion, an acceleration in growth from the previous quarter that comes despite stepped-up competition from rivals Microsoft and Google.
For the full year, Amazon’s most profitable unit pulled in $4.3 billion in operating income.
That kept Amazon in the black despite continued losses in its international retail business.
Amazon is investing heavily in an effort to build out logistics networks and gain market share around the globe, particularly in India. The company also launched an Australian retail site in December, the retailer’s 14th country-specific retail operation.
The international segment’s operating loss widened to $3 billion, from $1.2 billion a year earlier.
Amazon during the quarter benefited from the overhaul to the U.S. tax code signed into law in December. The company remeasured its expected tax liabilities to reflect the new, lower rate, a process that boosted its results during the quarter by $789 million.
Overall, the Seattle company posted a fourth-quarter profit of $3.75 a share. Analysts, who didn’t account for the roughly $1.60-a-share boost from the U.S. tax bill, were expecting a profit of $1.84 a share, according to S&P Global Market Intelligence.
Amazon shares traded up 6.3 percent at $1,477.10 in after-hours trading Thursday The stock had closed regular trading down 4.2 percent at $1,390.
Amazon’s stock is up 65 percent from a year earlier, taking the share price to a record high and making founder and Chief Executive Jeff Bezos the world’s wealthiest man. By Bloomberg News’ calculations, his wealth jumped by $6.5 billion in after-hours trading Thursday, to $123 billion.