Amazon is running on all cylinders following a blockbuster Q4 and poses an ever-greater threat to incumbents in the grocery, cloud computing, and advertising industries. Expect Amazon to continue leveraging the profitability of AWS to drive operational efficiency in its core retail business, a unique advantage over traditional retailers.
The company posted $60.5 billion in global revenue for Q4, up 38% year-over-year. Online Stores (which includes product sales and digital media content) grew 20% YoY to $35.4 billion, accounting for 59% of overall revenues.
“Other” services, which includes advertising revenue, was Amazon’s fastest-growing line of business in Q4, growing 62% YoY to $1.7 billion. Execs said to expect “more new tools” in the future to give vendors and sellers a better experience and to help shoppers discover new brands. L2 predicts that in 2018, brands and agencies will shift more ad spend to Amazon in order to leverage Sponsored Products, Headline Ads, and other on-platform marketing tools, driving a 50-100% increase in ad revenue.
Execs did not mention whether advertising would be coming to the voice platform that powers its line of Echo devices, but did say that Alexa has been a “very positive surprise,” with more than 1,200 brands now on the platform and a noticeable uptick in customer engagement including voice shopping.
Physical Stores (which Amazon began reporting in Q3 and is primarily comprised of revenue earned by Whole Foods) came in at $4.5 billion for the fourth quarter—“slightly better” than what Amazon had built into guidance according to CFO Brian Olsavsky. On the earnings call, Olsavsky said the Amazon-Whole Foods teams were focusing on continuing to lower prices, leading to increased customer demand. He addressed media reports about out-of-stock issues at select Whole Foods locations, saying the company had made no changes post-acquisition that would have an impact on inventory management, and that any issue was likely due to increased demand.
Services on which Amazon earns revenue continue to drive growth and help with operational efficiency in the company’s core retail business. AWS posted $5.1 billion in quarterly revenue, up 45% YoY. When asked whether the company would continue to keep the cloud computing and retail businesses under one corporate structure, Amazon’s Director of Investor Relations Dave Fildes said he saw “no reason to change the structure” and that as one of the largest AWS customers, the consumer business was “very happy” with its services.