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 The No. 1 U.S. online retailer was unusually forthcoming during its
fourth-quarter earnings call on Thursday, saying it will break out
results this year, for the first time, for its fast-growing cloud
computing unit, Amazon Web Services.
The company also said it would focus on getting more out of its
assets in 2015 and emphasized that it was already starting to reap
benefits from investments in steaming video and logistics
infrastructure.
"The team ... is putting even more energy around making sure we get
great productivity around our various fixed and variable
investments," Chief Financial Officer Tom Szkutak told reporters on
a conference call.
This was a shift in tone for Amazon, which typically refuses to
disclose more than the most basic details, including how many
members belong to its $99-a-year Prime program or if its
wide-ranging investments are paying off.
Chief Executive Jeff Bezos has deflected criticism of his spending
by emphasizing that he takes a much longer view than most investors.
Late last year, he boasted that he spends just six hours a year on
investor relations.
But Amazon shares dropped by more than 20 percent last year as
investors grew weary of its spending on film and television
productions, grocery delivery and consumer devices. Amazon also has
fallen short of estimates in five of the last eight quarters.
The additional information shared during Amazon's fourth-quarter
results as well as its emphasis on becoming more efficient signaled
a new willingness by Amazon executives to listen to investors as
well.
"This quarter, Amazon flexed its muscles and said this is what we
can do when we focus on profits," said Rob Plaza, senior equity
analyst for Key Private Bank. "If they could deliver that upper
teens, low 20s revenue growth and be able to deliver profits on top
of that, the stock is going to respond."
The change is unlikely to be dramatic. When asked whether this
quarter marked a permanent shift in Amazon’s relationship with Wall
Street, Plaza laughed: "I wouldn't be chasing the stock here based
on that."
Still, the shift is a good sign for investors, who have been
clamoring for Amazon to disclose more about its fastest-growing and
likely most profitable division that some analysts say accounts for
4 percent of total sales.
The change seemed unlikely until AWS made up 10 percent of Amazon's
net sales, the threshold at which U.S. securities regulators require
disclosure.
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Szkutak also added that a large portion of Amazon's capital
expenditure will go toward AWS, which has stepped up its efforts to
win over lucrative contracts with large, corporate clients.
"You should expect that we'll be spending more in terms of CapEx to
support our web services business, which is growing very fast," he
said on a separate call with analysts. "You should expect us to add
fulfillment capacity."
In a statement, Bezos also revealed that Prime memberships grew 53
percent worldwide in 2014, with international markets outpacing U.S.
growth - the first time the company shared such figures. Amazon
spent $1.3 billion on its video operation and billions on Prime
shipping, Bezos said.
Customers who tested Prime for streaming video were more likely to
subscribe and stay longer than those who joined through other
channels, Szkutak said.
Amazon's spending on packing and shipping orders rose just 17.3
percent, nearly half the increase in the 2013 fourth quarter. Having
more warehouses has helped lower transportation costs and Amazon is
relying more on third-party sellers, which Plaza said generate three
times the margin of direct Amazon sales.
There was little discussion of consumer devices, like the Fire
smartphone Amazon debuted last year to lackluster reviews. In the
fourth quarter, Amazon worked through some of the $80 million in
excess phone inventory it had at the end of September, Szkutak said.
(Reporting by Deepa Seetharaman; Editing by Richard Chang)
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