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Bye, bye Bezos..

Amazon’s net sales rose 42% (ignoring the impact of exchange rates) to $125.6bn in the fourth quarter, comfortably ahead of what the market expected. There was a 74% increase in operating profit too, which at $6.9bn was also some way above analyst expectations.

Online sales of $66.4bn rose 46%, with the second biggest contribution to overall sales coming from third party seller services. These now make up $27.3bn of net sales, rising 57%. Amazon Web Services (AWS) recorded sales of $12.7bn, compared to $10.0bn in 2019.

Overall, North American sales rose 40% to $75.3bn, while operating profit rose at a faster rate of 55%, to $2.9bn. The International business recorded net sales of $37.5bn, against $23.8bn this time last year. Operating profits were $363m, up from a $617m loss in 2019. AWS operating profit rose 37% to $3.6bn.

Shipping costs rose 67% to $21.5bn, while there was a 63% rise in headcount – to 1.3m.

For the year as a whole, free cash flow rose to $31.0bn (2019: $25.8bn), helped by the higher profits. That fed into a net cash position of $52.6bn at the end of 2020, compared to $31.6bn in 2019.

Amazon remains mindful of ongoing uncertainty and said conditions mean it’s “not possible to determine the ultimate impact” on their operations. However, provided there are no material changes, first quarter net sales are expected to be $100.00bn – $106.0bn, with operating profit of $3.0bn- $6.5bn. That assumes $2.0bn in Covid related costs.

Founder and current CEO Jeff Bezos will step down as CEO and assume the position of Executive Chair from Q3 of the current financial year. He will be replaced by Andy Jassy, the current CEO of Amazon Web Services.

The shares were broadly flat in after-hours trading.

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown:

“Jeff Bezos has chosen to end his remarkable tenure as CEO on an unquestionable high. It’s hard to fathom Amazon’s scale, with its first ever $100bn+ quarter now under its belt. The group’s benefited massively from the pandemic, with swathes of the world locked out of physical shops. These heady numbers set a high bar for the future, so growth is set to temper next quarter, but, frankly, the results can’t be argued with. Crucially, Amazon has achieved sufficient scale to drive significant operating leverage, meaning profits are accelerating even faster than sales. That’s been helped by its role as a facilitator. Its vast number of third-party sellers translate into extra fees, where vendors pay for warehousing and delivery. Many of these businesses can’t live without Amazon, and that’s an attachment the giant has leveraged as a reliable, high-margin source of income.

Amazon Web Services shouldn’t be left by the wayside. This arm specialises in cloud computing and is far more profitable on a per-sale basis than other areas of the business. Adding a customer to a virtual storage cloud takes very little effort and cost compared to a ramp up in retail orders, which requires physical space and manpower. This division continued to shine in the quarter, and now accounts for a more meaningful chunk of sales. The potential here is huge, and the scalable benefits that come with it should have ears pricking up. It’s no accident the current head of this division is the one being asked to take charge of the whole Amazon ship.

Amazon hasn’t escaped the pandemic unscathed. There have been further questions about the group’s social responsibilities, as it’s continued to mushroom in size. In this day and age, failure to treat all workers and suppliers fairly is simply bad business acumen, as boohoo discovered recently. Amazon will be acutely aware of these risks, but from an investment perspective, the case is unchanged. The bad PR might be loud, but it’s done little to turn the volume down on the world’s insatiable appetite for the convenience Amazon provides.”

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