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1/31/2014
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Amazon Posts 20% Revenue Growth, Stock Drops

Amazon.com and its Web Services unit grew in the fourth quarter of 2013 but not enough to please investors -- Amazon stock dropped 9.5%.

Deadly Downtime: The Worst Network Outages Of 2013
Deadly Downtime: The Worst Network Outages Of 2013
(Click image for larger view and for slideshow.)

Amazon reported its fourth-quarter results Thursday. Even though revenue grew 20% from a year earlier to $25.59 billion, its stock slumped in trading after the announcement.

Net income more than doubled to $239 million, or 51 cents per share, during the key holiday shopping quarter of October-December. The Wall Street analyst consensus in advance of the report had pegged earnings 74 cents per share on revenue of $26.05 billion.

The results appeared to trigger disappointment in Amazon investors, even though full-year revenue grew 22% to $74.45 billion. Operating costs grew at a slower rate of 10%, but Amazon's spending on its business went from $676 million in 2012 to $745 million in 2013. Amazon stock fell 9.5% in the aftermath of the announcement from its close of $403.01 the day before to $364.58.

To boost cashflow, Amazon is reportedly considering raising the price of Prime customer membership ($79 a year) by $20 or more. Prime customers get free shipping and other benefits. Comments left at some blogs worried that such a move would cost Amazon customers, but a minority maintained that Amazon has developed enough stickiness that it would be hard for Prime subscribers to give up their benefits because of a small price increase.

[Read how Amazon keeps margins tight: Amazon Cuts Cloud Storage Prices, Adds Server Instances.]

Amazon Web Services turned in a solid quarter. "Other" revenue (which is believed to be largely AWS), nearly doubled in 2013 over 2012 to $3.2 billion.

Jillian Mirani and Michael Barba, cloud practice analysts at Technology Business Research, wrote in a note that Amazon is "successfully executing" its strategy of taking marketshare as a public infrastructure service provider to the enterprise market. It is doing so by repeatedly adding to its technology stack with such things as Amazon Workspaces or cloud-based end-user virtual desktops, tools for application development, and value-added database systems.

On Feb. 1, AWS will cut prices for the 40th time since launching EC2 in 2006. It will drop Elastic Block Store pricing by 50%, and several server instance prices will be cut an average of 14%. Amazon is the market leader in the segment, according to Gartner. CEO Jeff Bezos seems determined to keep it that way, despite the parent company's thin margins.

Private clouds are moving rapidly from concept to production. But some fears about expertise and integration still linger. Also in the Private Clouds Step Up issue of InformationWeek: The public cloud and the steam engine have more in common than you might think (free registration required).

Charles Babcock is an editor-at-large for InformationWeek, having joined the publication in 2003. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive Week. He is a graduate of Syracuse ... View Full Bio

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cbabcock
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cbabcock,
User Rank: Strategist
2/3/2014 | 5:26:44 PM
Fulfullment spending is 11.4% of revenues
According to Amazon's 2013 figures, fulfillment spending rose to 11.4% of revenue, compared to 10.6% a year ago. That's not as much as I had imagined.
Charlie Babcock
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Charlie Babcock,
User Rank: Author
2/3/2014 | 4:37:13 PM
Amazon plan? Generate cash to support the capital building.....
Kmarko: "It continues to generate enough cash to support the capital building plan." Yes, it does, but barely. What happens if there's not sufficient growth to suppot the building already under way? The discussion of a hike in Prime subscriptions generates more cash flow, also commits the company to a year of free deliveries at a modest price. I sort of see what they're doing; wary that it's always going to work.
Charlie Babcock
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Charlie Babcock,
User Rank: Author
2/3/2014 | 4:32:00 PM
Amazon overly ambitious?
The thing that makes me wary is that Amazon.com is trying to do so many things at once. It's building out fulfillment centers. It wants to do same day deliveris and deliveries of fresh groceries in those big green trucks marked "Fresh." That's a huge amount of distribution infrastructure they're trying to build out. They are trying to be in the consumer hardware space with the Kindle and Kindle Fire tablets. They want to compete with Netflix in movie and video downloads, while hosting Netflix. They want to produce video content. They're trying to capture the consumer in multiple ways. It may work but it may also be overly ambitious.
Lorna Garey
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Lorna Garey,
User Rank: Author
2/3/2014 | 3:59:46 PM
Call me a socialist ...
But since when is 20% revenue growth with a doubling of net income cause for disappointment among investors? That's a sign just how crazy expectations have gotten. At some point, what if Amazon decided not to raise Prime prices and instead to hold steady and even plow more profits back into R&D, a la Apple? Would the stock be lowered to junk status?
Drew Conry-Murray
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Drew Conry-Murray,
User Rank: Ninja
2/3/2014 | 9:54:06 AM
Re: AWS just a blip?
I wonder if the Prime price increase is also a tell for the future of AWS: get a healthy chunk of business customers committed to AWS, and then slowly start raising prices.
Li Tan
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Li Tan,
User Rank: Ninja
2/3/2014 | 1:18:29 AM
Re: AWS just a blip?
In my opinion AWS is not a big cash cow for Amazon but definitely it's not trivial in terms of company's future success. Strategically cloud computing is the future trend and Amazon is investing it. Furthermore, the company is doing a sustainable business and generating enough cash for future growth. I still expect a bright and prosperous future of Amazon, especially in cloud computing area. AWS is a good business and it outperforms many other big IT giants such as IBM and MS.
kmarko
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kmarko,
User Rank: Strategist
2/2/2014 | 1:43:23 AM
Re: AWS just a blip?u
No, not superficially, but AWS-like software and infrastructure clearly undergirds Amazon's processes. So, yes, AWS will eventually be a financially significant part of the company. What do you think? By couching the question this way the clear inference is that you think AWS is trivial to Amazon's business. Is it? If so, will it remain insignificant?
Brian.Dean
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Brian.Dean,
User Rank: Ninja
2/1/2014 | 11:57:49 PM
Re: AWS just a blip?
Google and many other firms would also like to have as much consumer information as possible, so it might be hard to get into that space, if Amazon does manage to get massive amounts of consumer information could they still keep their low net profit margins or would they eventually have to raise net profit margins in order to satisfy shareholders?
kmarko
IW Pick
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kmarko,
User Rank: Strategist
1/31/2014 | 9:20:55 PM
Re: AWS just a blip?
The health of Amazon's business is in the eye of the beholder, but it contintues to generate enough cash to support the company's capital building plans. Regarding AWS, it's still a blip a ~$4B, but still bigger than IBM, GOOG or MSFT in the IaaS and PaaS market. Clearly, AWS is not material to the company's current operations, but it is strategic to its long-term goals. I think a tell was the offer to provide Kindles as in-store POS devices. The goal seems to be sucking as much consumer information into your infrastructure as possible. Once there, Amazon has demonstrated how to monitize such information.  
David F. Carr
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David F. Carr,
User Rank: Author
1/31/2014 | 6:37:21 PM
AWS just a blip?
Great that it looks like Amazon boosted its cloud services revenue, but is it really material to the health of the business? Is it ever likely to be?
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