Amazon’s Q4 revenue grows 22% in North America
January 29, 2015 04:04 PM
Amazon.com Inc., No. 1 in the Internet Retailer Top 500 Guide, today posted a fourth quarter 2014 revenue gain of 14.6%, with North American sales increasing by 22.3% and international sales up by 3.2%.
For the full year, Amazon’s revenue increased 19.5%, with North America up 24.6% and international increasing by 12.0%. The e-retailer also posted a net loss of $241 million for the full year.
CEO Jeff Bezos took the opportunity to boast about growing membership in Amazon Prime, which provides members free, two-day shipping, a selection of movies and TV shows to stream and other perks for $99 a year, a fee Amazon raised from $79 last year.
"When we raised the price of Prime membership last year, we were confident that customers would continue to find it the best bargain in the history of shopping,” says CEO Jeff Bezos in the typically upbeat commentary that accompanies Amazon earnings releases. “On a base of tens of millions, worldwide paid membership grew 53% last year—50% in the U.S. and even a bit faster outside the U.S. In 2014 alone we paid billions of dollars for Prime shipping and invested $1.3 billion in Prime Instant Video. We'll continue to work hard for our Prime members."
Amazon gave no figures for Prime membership, though a recent estimate says 40 million U.S. consumers belong to the two-day shipping and loyalty program.
Amazon’s share price was up more than 11% the day after the report, as Amazon surprised investors by recording a profit of $214 million in the fourth quarter, following losses of $437 million in the third quarter and $108 million in the second quarter.
A big reason for the turnaround was slowing growth in expenditures on fulfillment, which grew 17% compared with the fourth quarter of 2013 versus expectations of a 28% increase, according to investment analyst Shawn Milne of Janney Capital Markets. That slowdown in fulfillment expense increases is a surprise given the addition of millions of Prime members who get free two-day shipping and the fact that 40% of units shipped by sellers on the Amazon Marketplace now use Fulfillment by Amazon, paying Amazon a fee for shipping, but adding to Amazon's costs. Analysts say the slower-than-expected increase reflects Amazon spending at a slower rate on new fulfillment centers, while benefiting from the efficiencies of prior investments.
Those investments include deploying at least 15,000 robots at its U.S. fulfillment centers, taking advantage of its 2012 acquisition of robot maker Kiva Systems. Amazon has also built out a network of sortation centers—Amazon said there would be 15 in operation in the U.S. by the end of 2014—to sort packages before handing them off for delivery to the U.S. Postal Service, a method of delivery that is less expensive on average than delivery through UPS or FedEx.
Chief financial officer Tom Szkutak offered little detail in response to analysts' questions about the slowdown in fulfillment expenses. "The team continues to work on getting productivity there," was all he said.
For the fourth quarter ended Dec. 31, 2014, Amazon reported:
• Net sales of $29.328 billion, a 14.6% increase from $25.587 billion in the same quarter in 2013. Of that revenue, about $23.102 billion stemmed from merchandise itself sold to consumers, what the e-retailer terms “net product sales”—up 9.6% year over year. The rest, $6.226 billion, came from commissions from outside merchants that sell on Amazon marketplaces, the Amazon Web Services cloud computing service and other smaller revenue sources. Those “net service sales,” as Amazon calls them, were up 37.9% from last year.
• North American net sales of $18.747 billion, up 22.3% from $15.331 billion for the fourth quarter of 2013. North America accounted for about 63.9% of sales in the fourth quarter of 2014, compared with 59.9% in the same period in 2013.
• International net sales totaling $10.581 billion, up 3.2% from $10.256 billion in 2013. International accounted for about 36.1% of sales in the fourth quarter, compared with 40.0% in 2013.
• Worldwide sales of books, music and videos decreased 3.8% to $6.950 billion from $7.227 billion, while electronics and other general merchandise increased 20.5% to $20.638 billion from $17.126 billion in the same period in 2013.
• Net income of $214 million compared with net income of $239 million in the same period in 2013, a decline of about 10.5%.
• Spending on marketing increased 34.7% to about $1.526 billion from $1.133 billion in the fourth quarter of 2013.
• Spending on technology and content, including fees for licensing content for its Amazon Prime Instant Video service, increased 41.5% to $2.635 billion from $1.862 billion.
• Spending on fulfillment increased 17.3% to $3.424 billion from $2.918 billion in 2013.
• General and administrative spending increased about 39.0% year over year to $442 million from $318 million.
“When we take a step back and evaluate Amazon’s holiday performance, there are a couple of reasons to their success,” says Scot Wingo, CEO of ChannelAdvisor Corp., which helps e-retailers sell on marketplaces operated by Amazon and its competitors. “They started their holiday promotions early, advertising Black Friday deals in the first few weeks of November. They also invested a lot in fulfillment last year and as a result didn't have the delivery debacle like 2013. So they stole Christmas by being aggressive on the front end with early promotions, and they extended the holiday season by being able to go later with fulfillment.”
For the full year 2014, Amazon reported:
• Net sales of $88.988 billion, a 19.5% increase from nearly $74.452 billion in 2013. Of that revenue, $70.080 billion stemmed from Amazon selling products itself to consumers, and those sales were up 15.1% year over year. The rest, $18.908 billion, came from commissions from outside merchants that sell on Amazon marketplaces, the Amazon Web Services cloud computing service and other smaller revenue sources. Those “net service sales,” as Amazon calls them, were up 39.6% from last year.
• North American net sales of $55.469 billion, up 24.6% from $44.517 billion in 2013. North America accounted for 62.3% of sales in 2014, compared with 59.8% in 2013.
• International net sales totaling $33.519 billion, up about 12.0% from $29.935 billion in 2013. International accounted for 37.7% of sales in 2014, compared with 40.2% in 2013.
• Worldwide sales of books, music and videos increased 3.6% to $22.505 billion from $21.716 billion, while electronics and other general merchandise increased 24.8% to $60.886 billion from $48.802 billion in 2013.
• Net loss of $241 million compared with net income of $274 million in 2013.
• Spending on marketing increased 38.3% to $4.332 billion from $3.133 billion in 2013.
• Spending on technology and content increased 41.3% to $9.275 billion from $6.565 billion.
• Spending on fulfillment increased 25.4% to $10.766 billion from $8.585 billion in 2013.
• General and administrative spending increased 37.5% year over year to $1.552 billion from $1.129 billion.
“We’ll be watching closely to see what kind of investments they're planning for fulfillment and sortation centers in 2015,” says Wingo, who estimates Amazon operates about 150 fulfillment centers around the world. “The regions they’re investing in heavily are China and India, and it’s getting eaten up by the press. I think everyone will be paying close attention to their traction in those regions, as well as talks of new markets of expansion.”