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Feb 03

Amazon’s product sales climb nearly 20% in 2018, but only 8% in Q4

2018 was a busy, profitable year for Amazon.com Inc. E-retailing’s leader generated $141.92 billion in product sales in 2018, up 19.7% from $118.57 billion in 2017. Product sales in the fourth-quarter holiday period accounted for 31.5% of 2018 product sales, coming in at $44.70 billion, up 8.2% from Q4 2017. Product sales account for goods sold by Amazon and exclude revenue from service sales, such as Amazon’s computer power business (AWS) and commissions paid by Amazon marketplace sellers. The number of units of goods sold worldwide, by Amazon and by marketplace sellers, during the quarter increased 14%.

Amazon’s revenue across all business segments totaled $232.89 billion in 2018, up 30.9% from $177.87 billion in 2017. Amazon’s net income was $10.07 billion, up 232.3% from $3.03 billion in 2017, with Amazon deriving about half of its operating income from AWS and half from its North American segment. International operations continue to lose money.

Shoppers made Amazon their go-to e-retailer for holiday shopping. The e-retailer reported fourth-quarter 2018 total revenue of $72.38 billion, up 19.7% from $60.45 billion in Q4 2017, with North American sales, excluding Amazon Web Services, increasing by 18.3% and international sales up by 15.5%.

Amazon’s online stores—product and digital sales—contributed $39.82 billion to Q4’s sales, up 12.5% from $35.38 billion in Q4 2017. Sales at physical stores—Whole Foods, Amazon Bookstores, Amazon Go, etc.—generated $4.40 billion, down 2.75% from $4.52 billion. Amazon Chief Financial Officer Brian Olsalvsky attributed to the decline to how Whole Foods was accounted for in Q4 2017. Olsalvsky said Q4 a year ago included 5 more days of Whole Foods revenue. He also noted that Whole Foods sales made online via Prime Now are accounted for in Amazon’s online sales, not store sales.

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Third-party seller services (including marketplace commissions) added $13.38 billion in Q4, up 27.2% from $10.52 billion. Sellers on Amazon’s marketplace accounted for 52% of units sold during Q4, up one point from 51% a year earlier and from 49% in Q4 2016.

The Q4 results come in at the high end of Amazon’s expectations. In its Q3 2018 results, Amazon projected it would generate sales of between $66.5 billion and $72.5 billion during the fourth quarter.

Amazon’s key retail and business developments of 2018

Amazon, with a workforce at the close of 2018 of 647,500, up 14.4% from a year earlier, continued to develop retail and business technologies and services meant to further cement itself as a dominant retailer.

In 2018, Amazon:

  • Made a split decision to co-locate its second headquarters, dubbed HQ2, in Queens, New York, and in Northern Virginia. Amazon is expected to have 25,000 employees at each location. It also will hire 5,000 to staff an operations center in Nashville.
  • Bought an online pharmacy, with the acquisition of PillPack for $753 million, granting Amazon entry into the prescription healthcare market.
  • Added more than 8 million square feet of fulfillment center space, including first-time builds of Amazon fulfillment centers in Oklahoma, Alabama, Missouri and Mississippi. Amazon also announced further fulfillment facilities in Michigan, Nevada, Arizona, Washington, Ohio and California.
  • Announced plans to increase its air fleet of cargo jets by 25% over the next two years to support Prime deliveries. Additional air hubs are planned as well.
  • In February, launched online grocery shopping via Prime Now and Whole Foods Market (acquired in 2017) in a handful of markets. By the close of 2018, Amazon had the service running in more than 60 metropolitan areas, deepening its reach in the online grocery market.
  • Debuted Amazon Go, its take on the urban convenience store. Available only to Amazon Prime members, the nine register-free stores currently in operation are designed to let consumers pick up whatever they want and walk out. More locations are planned for 2019.
  • Established a $15 minimum wage for all U.S. employees.
  • Expanded its relationship with Kohl’s Corp., No. 18 in the Internet Retailer Top 1000, which allows Amazon shoppers to return some goods bought on Amazon to return stations in Kohl’s stores. Initially tested in 2017, the service is now available in 102 Kohl’s locations in and around Chicago, Milwaukee and Los Angeles.
  • Launched sales arrangements with multiple large retail brands, including Best Buy Co. Inc. (No. 8), J. Crew Group Inc. (No. 53), Chico’s FAS (No. 106) and Party City Holdings (No. 283).

For the fourth quarter ended Dec. 31, Amazon reported:

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  • Net sales of $72.38 billion, a 19.7% increase from $60.45 billion in the same quarter in 2017. Of that revenue, about $44.70 billion stemmed from merchandise Amazon itself sold to consumers—what the e-retailer terms “net product sales”—up 8.2% from $41.33 billion year over year. The rest, $27.68 billion, came from commissions from outside merchants that sell on Amazon marketplaces, the Amazon Web Services cloud computing service and other smaller revenue sources. Those “net service sales,” as Amazon calls them, were up 44.7% from last year’s $19.13 billion.
  • North American net sales of $44.12 billion, up 18.3% from $37.30 billion for the fourth quarter of 2017. North America accounted for about 61.0% of sales in the fourth quarter of 2018.
  • International net sales totaling $20.83 billion, up 15.5% from $18.04 billion in 2017. International accounted for about 28.8% of sales in the fourth quarter.
  • Amazon Web Services revenue was $7.43 billion in Q4, up 45.4% from $5.11 billion a year earlier.
  • Other income–largely coming from Amazon’s growing advertising business–totaled $3.39 billion, up 95.3% from $1.74 billion.
  • Revenue from subscriptions, including Prime fees, were $3.96 billion, up from $3.18 billion.
  • Net income of $3.03 billion compared with net income of $1.86 billion in the same period in 2017, a 62.9% increase.
  • Spending on marketing increased 42.7% to about $4.91 billion from $3.44 billion.
  • Spending on technology and content, including fees for licensing content for its Amazon Video service, increased 21.6% to $7.67 billion from $6.31 billion.
  • Spending on fulfillment increased to $10.03 billion from $8.97 billion in Q4 2017, up 11.8%.
  • General and administrative spending grew about 7.7% year over year to $1.12 billion from $1.04 billion.

For the full year 2017, Amazon reported:

  • Net sales of $232.89 billion, a 30.9% increase from $177.87 billion in 2017.
  • North American net sales of $141.37 billion, up 33.2% from $106.11 billion in 2017.
  • International net sales totaling $65.87 billion, up 21.3% from $54.30 billion in 2017.
  • Amazon Web Services revenue was $25.66 billion, up 47.0% from $17.46 billion a year earlier. AWS sales accounted for 11.0% of 2018 consolidated revenue.
  • Net income of $10.07 billion compared with a net income of $3.03 billion in 2017.
  • Spending on marketing increased 37.1% to $13.81 billion from $10.07 billion in 2017.
  • Spending on technology and content increased 27.5% to $28.84 billion from $22.62 billion.
  • Spending on fulfillment increased 34.8% to $34.03 billion from $25.25 billion in 2017.
  • General and administrative spending increased 18.3% year over year to $4.34 from $3.67 billion in 2017.

Amazon is the No. 1 retailer in the Internet Retailer Top 1000.

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