In 2018, AWS delivered most of Amazon's operating income
Amazon published its fourth quarter financial results on Thursday, beating market expectations. For the full fiscal year 2018, Amazon Web Services grew at a robust 47 percent and accounted for the bulk of the company's profit.
Amazon's net income in Q4 came to $3 billion, or $6.04 per diluted share, compared with net income of $1.9 billion, or $3.75 per diluted share, in the fourth quarter of 2017. Revenue for Q4 increased 20 percent year-over-year to $72.4 billion.
Wall Street was looking for earnings of $5.67 per share on revenue of $71.87 billion.
For the full year, Amazon's net income reached $10.1 billion, or $20.14 per diluted share, compared with a net income of $3 billion, or $6.15 per diluted share, in 2017. Net sales increased 31 percent to $232.9 billion, compared with $177.9 billion in 2017.
AWS nudged out Amazon's North American e-commerce unit to deliver the most operating income for 2018. AWS had operating income of $7.3 billion for 2018 to Amazon North America's $7.27 billion. The catch is that it took Amazon North America $141.4 billion of sales for that operating income and AWS needed $25.65 billion.
For the fourth quarter, Amazon North America delivered more operating income than AWS--$2.25 billion to $2.18 billion.
AWS, with a year-over-year net sales growth of 47 percent, grew faster than the other business segments. Overall, Amazon posted a growth rate of 31 percent.
Analyst Patrick Moorhead, founder of Moor Insights & Strategy, said in a statement that he attributes AWS's growth rate to "its increased flexibility through 'elastic' capabilities as well as increased variability across EC compute capabilities." He added, "I will be interested to see how AWS's recently announced AI PaaS and SaaS services fare as they appear quite compelling."
Advertising is another fast-growing source of revenue for Amazon. Advertising accounts for most of Amazon's "Other" category, which is not an official business segment. Amazon said the category grew 97 percent in the fourth quarter to bring in $3.39 billion in net sales.
Dave Fildes, Amazon's Director of Investor Relations, said on Thursday's earnings conference call that Amazon is "continually evolving" its tools and services for advertisers, to "make sure they've got a variety of ways to meet their goals." That includes expanded sponsor brand placement and improved campaign manager features, he said.
In a statement, CEO Jeff Bezos stressed the growth of Amazon's AI-powered assistant Alexa.
"Alexa was very busy during her holiday season," Bezos said. "Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year."
The number of research scientists working on Alexa has more than doubled in the past year, he noted.
"In 2018, we improved Alexa's ability to understand requests and answer questions by more than 20% through advances in machine learning, we added billions of facts making Alexa more knowledgeable than ever, developers doubled the number of Alexa skills to over 80,000, and customers spoke to Alexa tens of billions more times in 2018 compared to 2017," Bezos said.
For the first quarter of fiscal 2019, Amazon is expecting net sales between $56 billion and $60 billion. Analysts are expecting revenue of $60.96 billion.