1,623.89, -94.84, -5.52%) reported strong fourth quarter results last night, but a soft first
quarter revenue outlook, and concerns over slowing growth and higher
investments this year are weighing the stock this morning.
Fourth quarter operating income grew 78% to $3.8 bln, above the company's guidance range for the sixth straight quarter. Revenue grew 20%, coming in at the high end of guidance but representing the slowest growth since the first quarter of 2015.
Amazon forecast continued slowing revenue growth for the first quarter (+14% at midpoint) as the sales outlook missed estimates for the third straight quarter. Offsetting that, $2.3-3.3 bln in foretasted profit or the first quarter was in-line with estimates.
Retail results for the holiday quarter were largely in-line. North America segment sales growth slowed to 18% from 35%. Online store sales growth accelerated to 14% from 11% and third-party seller services growth remained strong at 28%.
Amazon Web Services revenue growth remained robust, growth was flat sequentially at 46% to $7.4 bln as operating profit grew 61% to $2.2 bln. The leading cloud computing business continues to be the big money maker for Amazon. On the call, management said AWS sales and marketing expense drove the 43% increase of marketing costs for the entire company. Management also warned that AWS cap-ex would increase this year to support growth.
Advertising sales grew 97% to $3.4 bln, down from 123% growth in the third quarter. This segment remains a high-margin growth driver while comps get tougher in 2019.
Gross margin expanded almost 200 bps to over 38% but missed estimates as strength at AWS, advertising and third-party sales, was offset be growth in lower margin retail operations, the loss-leading Echo Dot, shipping costs and a lower free shipping threshold during the holiday.
Management also acknowledged uncertainty in India due to a rule change designed to protect local companies.
Slowing retail sales growth is giving investors some caution but that was seemingly inevitable.
Amazon is in the midst of transitioning into a cash flow and value story from one of growth.
Investors may find solace in the fact that fourth quarter operating cash flow grew 33% to $16.5 bln vs. $15 bln estimates and grew 67% to almost $31 bln in 2018.
On the call, management noted that 2018 benefited from investments in 2016 and 2017, and investments will pick back up in 2019. That should not come as much of a surprise given that the company has consistently invested in growth since the company was founded by Jeff Bezos in 1994.
While the earnings multiple above 60x looks bloated, the ~20x forward free cash flow multiple is much more reasonable.
Amazon tripled operating profit to over $12 bln in 2018 on revenue grew of 31% to $233 bln. Amazon is expected to grow operating profit 44% with revenue up 18% this year.
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