Amazon heads toward $700 billion valuation thanks to Alexa, AWS and tax gains
Amazon.com Inc.’s blowout earnings report Thursday was powered by big sales associated with its Alexa voice assistant, hefty profits at Amazon Web Services and a tax benefit of $789 million, sending its stock toward record highs that could mean a $700 billion valuation.
shares soared more than 6% in after-hours trading to prices that would be intraday records in regular trading, thanks to record quarterly profit and revenue in the holiday-shopping season. Before any post-earnings gains, Amazon’s shares are already up about 19% this year, compared with the Dow Jones Industrial Average
, now up about 6% in 2018.
Amazon gave a lot of credit to Alexa, its voice-activated assistant, with Chief Executive Jeff Bezos saying in a statement that Alexa’s results far outpaced its internal projections, and that Amazon would “double down” on its investment in this arena. But the company declined to give further specifics on sales volume or revenue, as is its typical practice with its own devices, from Kindle to FireTV. Company officials did not respond to questions about Alexa revenue nor where it would be included in Amazon’s financial statement.
“We had record device sales with very high levels of customer engagement, including increased levels of voice shopping, growth in functionality, growth in our partners we work with, skills that we’ve increased rapidly,” Chief Financial Officer Brian Olsavsky said in a call with analysts.
Daniel Ives, head of technology research at GBH Insights, said in an email to MarketWatch that Alexa revenue was split between U.S. and international, and that he believed it could hit $15 billion in revenue in the next three years combined.
“As evidenced this quarter, Bezos & Co. have an ‘iron grip’ on e-commerce spending which is showing no signs of slowing down into 2018,” Ives said in a note to clients.
While Amazon remains quiet on the financial contribution of Alexa and its other electronics, the results from its cloud-computing business, AWS, were obvious and contributed much more to the company’s record profit total. AWS saw revenue soar 45% to $5.1 billion, with profits of $1.3 billion. AWS and the tax gain of $789 million for the changes in the U.S. tax code, which lowers Amazon’s tax rate to 21%, were the biggest contributors to the company’s overall net income of $1.86 billion, which was dragged down by additional losses from international sales.
AWS exited the fourth quarter on a $20 billion annual run rate, and it is reasonable to ask if Amazon will spin out the cloud-computing startup, especially as it seeks to build a second headquarters that could serve as a home for a separate company. Olsavsky, though, quickly shot that idea down when asked Thursday.
“As an internal customer, the consumer business is very happy with AWS,” Olsavsky said. “And I think AWS is also very benefited by the fact that they have a large internal beta customer that tries out and uses a lot of their products and services. So it’s a good combination for a lot of reasons, and we see no reason to change the structure that we have.”
Amazon will continue to spend on building out warehouses and its logistics capacity, data centers and product development, but it did not give any details — a common refrain for the tight-lipped company. It is also continuing to develop its acquired Whole Foods grocery business, which it said helped boost Amazon’s “physical stores” revenue to $4.5 billion in its first full quarter as part of Amazon. Amazon said it is working to continue to lower prices and add delivery lockers at Whole Foods stores for customers nationwide.
Amazon will continue to spend freely, but that whopping profit total is hard to ignore, and was helped by some improvements in its operations. The company’s typically high shipping costs were not as massive as feared in the fourth quarter: Amazon spent $5.6 billion on the key feature of its Amazon Prime membership program, up 35% compared with a year ago, when shipping costs jumped 43%.
“It was very strong operational quarter,” Olsavsky said.
Amazon faces plenty of rivals as it grows toward a $700 billion market cap, including Alphabet Inc.’s
Google Assistant aiming for Alexa and Microsoft Corp.’s
Azure targeting AWS. But investors can feel assured that the combined forces Amazon wields are now strong enough to fight anyone who wants to step forward.