This week, Amazon.com reported fourth-quarter financial performance that included the all-important 2019 holiday fulfillment period, the very quarter that most retailers spend months in overall planning.

Once again, the online retailer continues to defy Wall Street prognosticators on the notions that thinking bold and spending, big does matter.

In the specific category of profoundly raising the bar in online retail, specifically investing big on more agile customer fulfillment and logistics capabilities absolutely matters.  Amazon branded delivery vans

Financial performance highlights of the quarter included a reported 21 percent increase in total revenues amounting to $87.4 billion. Consensus estimates just days before pegged estimates of 17 percent revenue growth, or $86 billion. Analysts had underestimated $1.4 billion of revenue growth and from our lens, much of that could be attributed to successfully fulfilling last-minute holiday buying needs. Total full-year 2019 revenues increased 20 percent to $280.5 billion, compared to $232.9 billion in 2018.

Regarding raising the bar from two-day to one day shipping for Amazon Prime members. Analysts and industry watchers pointed to more than $800 million in investment spending in the April to June period, and an estimated $1.5 billion in investments in the final quarter to enable one-day shipping capabilities. An additional $1 billion in investment for added rollout of one-day shipping is expected in the current quarter.

Net income rose 8 percent in the final quarter to $3.3 billion, after declining 25 percent in the September-ending quarter, primarily attributed to noted costs incurred in preparing for one-day shipping process needs. Full year 2019 net income increased to $11.6 billion, compared to $10 billion in 2018.

Free cash flow from operations grew 25 percent year-over year. Of more interest, operating income for the North America region declined 16 percent while the International region continue to report an operating loss.

The online retailer’s total transportation costs rose 43 percent to $12.9 billion.

How many retailers, or transportation services providers have the willingness to follow through on such a strategy? As many have noted, very few, especially those that are more sympathetic to Wall Street’s shorter-term focused  expectations.

Many do not have the advantage of other highly profitable businesses that can provide the cash generation resources.

Regarding the latter, the online retailer’s Amazon Web Services business unit reported near $10 billion in Q4 revenues, slightly higher that consensus estimates of $9.8 billion. Operating income rose 19 percent  to $2.6 billion. Total net sales revenues for AWS were $35 billion compared to $25.6 billion in 2018. Operating income in 2019 was $9.2 billion.

The physical stores segment, which umbrellas the Whole Foods retail outlets reported $4.4 billion in revenues, down one percent for the year-earlier period. This could be an added sign of challenges related to integrating physical with online.

 

Reader Takeaways

Amazon continues to outperform critics and skeptics in market aggressiveness and bold investments.

The term juggernaut is likely appropriate and indications of additional online sales growth during the 2019 holiday fulfillment period were indeed reinforced by Amazon’s reported financial performance.

Make no mistake that this online provider understands that customer fulfillment and logistics are a fundamental component to all forms of online retailing.

 

 

Bob Ferrari

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