Amazon fumbles earnings amidst high expectations

Mixed faces in Seattle today as Amazon delivered its Q4 2016 earnings. The e-commerce company reported lower than expected revenue of $43.74 with better than expected earnings per share of $1.54. Expectations had been high in the run up to the release. Wall Street consensus was that Amazon would deliver revenue of $44.68 billion with $1.35 earnings per share.

In the immediate moments after the news dropped, Amazon stock shot down 4 percent in after-hours trading. Going into Q1 2017, Amazon is forecasting revenue to be between $33.25 billion and $35.75 billion.

Last quarter was rough for investors. Wall Street was largely caught off guard when the company reported EPS 26 cents below 78 cent expectations. In reaction the stock slugged along with little gains to close out the year. But the narrative had been changing in recent weeks.

Prior to today’s close, Amazon stock was up 8.7 percent in the last month. The increase in value signifies investor confidence in the rapidly diversifying company. Google and Amazon alike are struggling to monetize their large product and service portfolios. But Amazon’s ability to beat Google to market has paid off in recent months. The company was first to the cloud and first to the smart speaker — two revenue streams that continue to see growth.

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Amazon Web Services continues to dominate. It grew at 47 percent delivering revenue of $3.53 billion. Investors like the business unit because of how lean it is. Overhead costs for AWS are much lower than costs to operate and grow the company’s e-commerce unit. In today’s release it was noted that AWS customers migrated more than 18,000 databases using the company’s services in 2016.

Aside from AWS, Amazon Alexa-enabled devices were the top-selling products across all categories on throughout the holiday season and the company is reporting that Echo family sales are up over 9x compared to last season. Amazon aims to brand Alexa as a platform, something that has helped the product to gain capabilities faster than its competition. Developers and corporates released 4,000 new skills for the voice assistant in just the last quarter.

Amazon’s media business is another shining point for the company. Sure it’s fun to see Jeff Bezos mingling with the Hollywood crowd and Amazon locking down Oscar nominations, but at-scale Amazon Studios holds the potential to be a major future revenue driver. Amazon noted on its earnings call that it’s spending ahead of the value being obtained from video engagement right now, but this is largely to be expected. Over time we will look for engagement to build that should gradually start to cover those initial costs.

With respect to Amazon’s core e-commerce business, growth continues to be driven largely by Prime. The company remains ambitious with its hopes for fulfillment center growth. All of this comes as large competitors continue restructuring. Just last week Walmart’s e-commerce division laid off 200 California employees.