Amazon sold a lot of things to a lot of people in the last three months of 2019, as speedy shipping shortened the time between “I want it” and “It’s here.”
That was expected. What no one anticipated was that profits would also shoot up.
On Thursday, Amazon said it had earned $6.47 a share in the quarter, up from $6.04 a year earlier. Analysts had forecast $4.04 a share, and some would not have been surprised if it had been less. Amazon went wide last year with one-day shipping for members of its Prime service, and “fast” is usually synonymous with “expensive.”
Not this time. Amazon said more customers joined Prime in the fourth quarter than ever before, pushing worldwide membership to 150 million households. That total was also more than analysts expected. It was 100 million less than two years ago.
Sales came in at $87.4 billion, up 21 percent from a year earlier and above what Wall Street predicted.
The possibility that “fast” is so valued by convenience-loving shoppers that they will bind themselves even more tightly to Amazon made investors giddy.
Amazon shares soared more than 10 percent in after-hours trading. That added $100 billion to the company’s valuation, at least for the night, pushing it above $1 trillion again.
“The surprise on the bottom line comes down to two things,” said Andrew Lipsman, an analyst with eMarketer. “First, it looks like the fixed costs in building out their last-mile infrastructure are beginning to normalize earlier than expected.”
Second, “with Amazon broadening their offerings, there is more pressure on sellers to buy ads in order to gain exposure,” Mr. Lipsman said. “That is driving ad business momentum, which is increasingly dropping to the bottom line.”
Amazon ads for Amazon products delivered in Amazon trucks to Amazon households, where Amazon cameras alert residents that their new toys have already arrived. This is the Amazon flywheel, and the earnings report said it was working well.
“What we saw was essentially very strong holiday performance, from the middle of November on,” Brian Olsavsky, the chief financial officer, said in a conference call on Thursday. The more Amazon sells, the more efficiencies of scale it can find.
So, he promised, Amazon will get bigger. “We will have to scale our fulfillment center network further,” Mr. Olsavsky said. Amazon has about 500 shipping facilities in the United States and 600 elsewhere in the world, according to MWPVL International.
If the last decade was all about Amazon’s ascendancy in retail, the next several years will bring more of a pitched battle.
“This will be the decade of the algorithmic retailer,” said Hilding Anderson, head of retail strategy at the consulting firm Publicis Sapient. “Companies like Walmart and Target will use all the data they have acquired to compete more effectively with Amazon.”
AWS, the high-margin cloud computing division that has been a big source of Amazon’s profits in recent years, also increased its revenue in the quarter, by 34 percent to $9.95 billion.
Amazon has a wide lead in renting computer space to other companies, although Microsoft, which reported this week that its cloud revenues had risen 62 percent in the quarter, is striving to catch up.
The fourth quarter of 2019 was the first big test of Amazon’s one-day shipping, which began last spring.
In early 2019, sales at the Amazon store were drifting down, growing at a modest rate (for Amazon) of about 12 percent annually. Always fearful of settling into complacency, the company announced that it was making one-day shipping standard for Prime households. Two-day shipping had been the rule since Prime’s introduction in 2005.
The Seattle company said it would spend an initial $800 million to carry out the program. It was classic Amazon: trading profit for revenue. As usual, the revenue flowed in. But the expenses continued. Additional costs related to one-day shipping were initially expected to be about $1.5 billion in the fourth quarter but came in a little less, Mr. Olsavsky said.
Amazon also continued its hiring spree during the quarter, signing up 48,000 new employees for a total of 798,000.
One of the factors that inspired people to join the company during the last decade was the soaring value of the stock, which is an important part of compensation for managers and engineers. With investors uncertain about profits, shares in regular trading Thursday were about 8 percent lower than the all-time high reached in September 2018. If that stall continued, Amazon would have had to increase compensation or suffer a brain drain.
For the moment, at least, that worry has abated.