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Amazon’s Q4 Beats Estimates, But Q1 Guidance Disappoints Investors

While Amazon.com Inc. bested Wall Street’s projections for the fourth quarter, the company’s first-quarter guidance didn’t mesh with Wall Street’s expectations and investors showed their displeasure.

For the three months ended Dec. 31, the company said net income jumped 63.1 percent to $3.03 billion, or $6.04 a diluted share, from $1.86 billion, or $3.75, a year ago. Total net sales were $72.38 billion, up 19.7 percent, from $60.45 billion, a year ago. Sales included an 8.2 percent increase in net product sales to $44.70 billion and a 44.7 percent increase is net service sales to $27.68 billion.

Wall Street analysts were expecting earnings per share of $5.67 on revenues of $71.87 billion.

For the full year, net income jumped to $10.07 billion, or $20.14 a diluted share, on total net sales of $232.89 billion. That’s compared with net income of just $3.03 billion, or $6.15 a diluted share, on total net sales of $177.87 billion in 2017.

Looking ahead, the company projected first quarter net sales at between $56 billion to $60 billion, representing growth of between 10 percent to 18 percent compared with the first quarter of 2018. But that’s down slightly from Wall Street’s consensus estimate $60.96 billion for the period.

Investors weren’t thrilled, and sent shares of Amazon down 3.3 percent to $1,662.00 in after-market trading at 5:56 p.m. Shares of Amazon closed Thursday’s trading session up 2.9 percent to $1,718.73.

Jeff Bezos, Amazon’s founder and chief executive officer, said, “Alexa was very busy during her holiday season. Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year.”

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He said the company has added to its number of research scientists during 2018, which helped improve “Alexa’s ability to understand requests and answer questions by more than 20 percent through advances in machine learnings.”

The company said during the holiday season alone, tens of millions of customers worldwide started Prime free trials or began paid memberships. For small and medium-sized businesses, Amazon said “third-party sales are growing faster than first-party sales,” and that nearly 200,000 small and medium-sized businesses surpassed $100,000 in sales in Amazon’s stores last year.

Amazon Fashion also launched Prime Wardrobe in Japan and the U.K., allowing Prime members to order apparel, footwear and accessories and only pay for what they keep.

As for its distribution and fulfillment operations, the division Amazon Air opened a new gateway operation in Riverside, Calif., and will launch new ones in 2019 in Wilmington, Ohio; Alliance, Tex. and Rockford, Ill. There are now over 20 airport gateway operations, allowing for onsite airport facilities to load, unload and sort packages. According to Amazon, the division’s operations make two-day shipping possible from almost anywhere in the U.S.

The company also expanded its operations in Brazil, providing fast and free delivery on hundreds of thousands of in-stock items that are sold and shipped by Amazon. Further, the company opened its first South American fulfillment center in the Greater Sào Paulo area. Customers now can shop from 12 categories and have products hipped across Brazil from the new fulfillment center.

But if the traditional product sales business has grown, it’s the company’s Amazon Web Services group that has seen the most growth. Up 44.7 percent in sales for the quarter, the company added several enterprise customers–Ellie Maie, Korean Air, Santander’s Openbank, Amgen and National Australia Bank, to name a few–that have signed up to use the technology firm’s cloud and strategic infrastructure. The web services group also introduced Amazon Managed Blockchain, a new service to help companies build applications so “multiple parties can execute transactions without the need for a trusted, central authority,” the company said. The managed blockchain business uses the popular, open source Ethereum and Hyperledger Fabric frameworks, making it easy for companies to create and manage scaleable blockchain networks.

Charlie O’Shea, lead retail analyst at credit ratings firm Moody’s Investors Service, said the strength of Amazon Web Services’ continued generation of “almost geometric sales growth with still-high margins” has more than offset investment-impacted international operating losses.

O’Shea noted that Amazon will continue to face ramped-up competition on the North American retail front from Walmart, Costco, Target, Best Buy and other large, financially-strong brick-and-mortar competitor. “Looking forward, retail competition from brick-and-mortar will continue to stiffen, requiring further investments in fulfillment and delivery, which makes the strength of [Amazon Web Services] increasingly important.”