Amazon, AWS Post Strong Results, Fail To Please Wall Street

Amazon reported revenues of $107 billion in full-year 2015, a 20% increase over the prior year. Its Amazon Web Services unit was a bright spot, showing solid growth for the full year and for Q4 2015. So, why isn't Wall Street satisfied?

Charles Babcock, Editor at Large, Cloud

January 29, 2016

4 Min Read
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Amazon offered more proof that it's attempting to redefine the digital-age consumer in its Q4 and full-year earnings report on Jan. 28. The company is investing heavily in catering to that consumer, and falling short of Wall Street's earnings expectations in the process. Its Amazon Web Services (AWS) cloud unit, however, remained a bright spot.

Amazon's annual revenues grew to $107 billion in 2015, a 20% increase over the $89 billion it reported in 2014. In Q4, revenue increased to $35.75 billion, a 22% jump over the same period a year ago. Without unfavorable foreign currency exchange rates, the quarterly and annual increases would have both been 26%, measured in constant currency.

Net income for the year came to $596 million, or $1.25 per share, compared with a net loss of $241 million, or 52 cents per share in 2014. Net income in Q4 2015 was $482 million, or $1.00 per diluted share, compared with net income of $214 million, or 45 cents per diluted share in Q4 2014. Nevertheless, that result was off Wall Street analysts' expectations of $1.56 per share.

That meant Amazon, whose revenue was growing at 20% in its 20th year of business, saw its stock fall by 9.2% in after-hours trading, following the earnings announcement. Amazon had been trading at $600 per share and dropped, at least temporarily, into the neighborhood of $555-$560 per share at press time.

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CEO Jeff Bezos himself invoked that 20-year history as he offered a justification for falling short on earnings. "It still feels like day one," he said in the earnings announcement. "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." Amazon continues to invest in new ways to serve consumers and sees a continued expansion of opportunity in front of it, Bezos added.

One of those investments is making Prime Now deliveries, which are free two-hour deliveries to its Amazon Prime customers in 14 metropolitan areas. Such deliveries "are difficult to make and expensive, but customers love it," said CFO Brian Olsavsky on the earnings call. Amazon now employs 30,000 automated-pick robots in its chain of worldwide distribution centers, he noted.

Olsavsky reported that the number of Prime customers had increased by 51% worldwide in 2015. Third-party market researchers put the number of Prime members at 60 million to 80 million, according to BusinessInsider. Prime members spend more with Amazon than other customers and enjoy free deliveries. Amazon Prime membership costs $99 a year.

AWS: Earnings Juggernaut

AWS, its cloud unit, remained the bright spot in Amazon's earnings. AWS continues to dwarf the competition. Its revenues increased to $2.4 billion in Q4, a nearly 69% jump from the same period a year ago. In full-year 2015, AWS revenue reached $7.9 billion, an increase of 71.7% over the $4.6 billion earned in 2014. According to Olsavsky, AWS is on a run rate that will yield slightly less than $10 billion in 2016.

AWS enjoys a 28.5% operating margin, much higher than Amazon's retail businesses.

AWS continues to require investment as a business, and it recently opened a data center complex in Korea. It is adding five other regions to its business in 2016, with one new set of data centers in North America, near Columbus, Ohio, Olsavsky said. InformationWeek has previously reported four others, to be located in Montreal, Slough in the UK, Ningxia in China, and an undisclosed location in India.

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About the Author(s)

Charles Babcock

Editor at Large, Cloud

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. 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 University where he obtained a bachelor's degree in journalism. He joined the publication in 2003.

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