Amazon holiday results crush expectations, and its stock surges 12%

Amazon.com Inc. dispelled concern about the cost of next-day delivery by reporting holiday-quarter revenue and profit that crushed Wall Street estimates. The stock surged 12% in after-hours trading Thursday on the news.

Fourth-quarter sales climbed 21% to $87.4 billion and profit rose to $6.47 a share, the Seattle e-commerce giant reported. Analysts, on average, projected sales of $86.2 billion and earnings of $4.11 a share, according to data compiled by Bloomberg. Amazon’s forecasts for the current quarter matched expectations.

Amazon is spending to fend off rivals in several key parts of its business. In e-commerce, the company is rolling out one-day delivery, up from its previous two-day offering, to fight intensified competition from Walmart Inc. and other retailers. The Amazon Web Services cloud business is building new data centers and hiring engineers in response to steady gains by Microsoft Corp. and a renewed customer push from Alphabet Inc.’s Google. Meanwhile, Amazon continues to plow money into overseas markets such as India and Brazil.

Paying members of Amazon’s Prime subscription, which offers free fast shipping and other perks, topped 150 million, the company said. That was up from about 100 million in 2018, and suggests Amazon is attracting overseas shoppers as the U.S. market becomes saturated.

”This shows how big of a step one-day delivery was in terms of maintaining engagement on its marketplace,” said RJ Hottovy, an equity analyst at Morningstar Inc. “The Prime membership number shows they are seeing strong growth internationally.”

Shares jumped to a high of $2,133.75 in extended trading, putting the company on course for a $1-trillion valuation Friday. The stock closed at $1,870.68 a share Thursday before the company posted its quarterly results. It had climbed about 12% in the past year, lagging behind tech industry peers.

There was good news for investors in nearly every part of Amazon’s business. Cloud-computing and online sales beat analysts’ expectations. Shipping costs grew at a slower pace than in the third quarter, showing Amazon is making its delivery network more efficient. The only issue was Whole Foods groceries, with revenue from physical stores declining marginally from a year earlier.

Before the results, some analysts were particularly concerned about slowing growth and rising costs at Amazon Web Services, the source of about two-thirds of Amazon’s operating income in recent years. Thursday’s results eased those worries for now.

AWS generated revenue of $10 billion in the fourth quarter, up 34% from a year earlier. Operating income grew 19% to $2.6 billion.

“Amazon blew all expectations out of the water during the holiday quarter,” said EMarketer principal analyst Andrew Lipsman. “Amazon’s increased profits during this quarter in the face of increased costs and competitive pressure in AWS was the real surprise.”

Even the Whole Foods blemish had a shiny side. Chief Financial Officer Brian Olsavsky said fourth-quarter grocery deliveries doubled from the same period a year earlier, so Amazon is increasing grocery sales even if in-store shopping is down. He attributed the growth to Amazon eliminating a $14.99 monthly fee for its grocery delivery service Amazon Fresh.

“We don’t care much whether it’s in store or delivered,” he said.