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Thanks to Prime and AWS,, Inc. Ended 2015 on a Strong Note

By Anders Bylund - Jan 29, 2016 at 6:09PM

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The e-tailer's retail operations may not be crushing any growth records, but digital services have picked up the slack in a big way.

Online retailer and e-services giant (AMZN -1.24%) reported fourth-quarter results for 2015 on Thursday night. Amazon shares took it on the chin, falling as much as 11.3% on Friday morning. In after-hours action right after the earnings release, share prices had plunged as much as 15%. At those extremes, the stock was exploring negative territory not seen since October.

As of 1 p.m. Friday, Amazon shares were trading about 8% below Thursday's closing price -- or right in line with the final trade on Wednesday. And let's not forget that the stock price has soared 88% higher over the last 52 weeks.

Though Amazon can match annual revenues and market cap value with the biggest traditional retailers out there, investors still often seem to treat it like a volatile high-growth minnow.

Amazon's Q4 results by the numbers


Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)


$35.8 billion

$29.3 billion


Operating Income

$1,108 million

$591 million


Free Cash Flow

$7.2 billion

$5.5 billion


GAAP EPS (diluted)





What happened with Amazon this quarter?
The company met or exceeded all of its own official targets in the fourth quarter. You will still see the quarter called a "miss" because Wall Street analysts had set their estimates above Amazon's official forecasts, and that's likely the reason for the drop in its stock price.

  • Comparing Amazon's reported results to guidance targets from the last report, revenues came in just above the midpoint of the official guidance range. Operating income landed near the top of Amazon's wide target range, which ran from $80 million to $1.28 billion.
  • Stock-based compensation costs in the quarter stopped at $606 million, just short of the $620 million that was baked into operating profit guidance.
  • The cloud computing platform known as Amazon Web Services, or AWS, saw fourth-quarter sales rising 69% year over year to $2.4 billion. The AWS segment provided 6.7% of Amazon's overall revenues but 39% of the company's segment-level operating income.
  • We don't know exactly how many Amazon Prime members the company has, but the Rolodex of paid Prime subscribers on a global level grew 51% larger year over year.

Looking ahead, Amazon did not offer any full-year guidance but provided some financial targets for the first quarter of 2016.

  • Net sales are seen rising roughly 23% year over year, landing near $27.8 billion.
  • Operating income should stop at roughly $400 million, though the guidance range runs from just $100 million all the way up to $700 million. In the year-ago period, operating income was $255 million.
  • The operating profits target includes approximately $600 million in expected stock-based compensation costs.
Jeff Bezos, Amazon founder and CEO

Jeff Bezos, Amazon founder and CEO. Source:

What management had to say
Amazon founder and CEO Jeff Bezos waxed poetic over the growth his company has seen. "Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift," Bezos said in a press statement. "This year, we pass $100 billion in annual sales and serve 300 million customers."

Even so, Bezos still sees plenty of room for growth ahead: "And still, measured by the dynamism we see everywhere in the marketplace and by the ever-expanding opportunities we see to invent on behalf of customers, it feels every bit like Day 1."

On the earnings call with analysts, CFO Brian Olsavsky added some color to the rapid growth and innate value of Amazon Prime in general, and the included Prime Video service in particular:

When Prime Video is used by our Prime members, it drives adoption and retention, higher free trial conversion rates, and higher renewal rates for subscribers.So what we were encouraged by in Q4 was that globally, our Prime members doubled the number of viewing hours of the Prime Video year-over-year. And internationally, we had twice as member Prime members streaming year-over-year.

Looking ahead
Amazon continues to deliver massive cash flows, a fact often lost on those who only worry about traditional bottom-line earnings. That is a tax-effective way to run the show, and not likely to change anytime soon.

The high-growth AWS division and Prime service continue to drive the company forward. Amazon launched a 40% higher number of new AWS features in 2015 (722 new features and services in 2015), compared to the 2014 figure. And Prime is slowly rolling out worldwide, with video services popping up across Europe and heavy investment in the enormous Indian market.

Expect these initiatives to remain at the core of Amazon's growth, and therefore the target of generous capital (and operating) expenses as well.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Try any of our Foolish newsletter services free for 30 days.

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