​All of Amazon's 2017 operating income comes from AWS

Amazon had a great e-commerce quarter, but AWS' growth was strong to pad the bottom line.
Written by Larry Dignan, Contributor

Amazon raked in fourth quarter earnings and sales as the company took retail share to handily top estimates. Yet, operating income for its e-commerce units in U.S. and international were well below Amazon Web Services.

The company said net income for the fourth quarter was $1.9 billion, or $3.75 a share, on revenue of $60.5 billion, up 38 percent from a year ago. The fourth quarter earnings got a boost from a tax benefit of $789 million.

Wall Street was looking for fourth quarter earnings of $1.85 a share on revenue of $59.83 billion.

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For 2017, Amazon reported net income of $3 billion, or $6.15 a share, on revenue of $177.9 billion, up 31 percent a year ago.

While the numbers from Amazon's e-commerce operations were impressive, the cash cow remains Amazon Web Services. Consider:

  • Amazon's North America e-commerce business delivered fourth quarter operating income of $1.69 billion on revenue of $37.3 billion.
  • International e-commerce sales were $18.04 billion with a operating loss of $919 million.
  • AWS had operating income of $1.35 billion for the fourth quarter with sales of $5.11 billion.
  • For the year, Amazon's international e-commerce operating losses eclipsed the company's North American operating profit. AWS had 2017 operating income of $4.33 billion on sales of $17.46 billion.

In other words, on an annual basis all of Amazon's operating income derives from AWS.

Amazon CFO Brian Olsavsky was asked about what factors were driving AWS results. He said:

AWS, yes, if you remember last year, we did have price increases in December of last year towards the end. So ithad a partial impact on the quarter. But generally, just strong usage growth -- usage growth continues to be strong growing at a higher rate than our revenue growth rate, and customers continued to add workloads and expand. And as I said, we're adding new services and features all the time, over 1,400 in 2017 alone. So it's a number of factors, I would say. It's not as simple as lapping a cost error -- excuse me, price decrease last year, but we're very happy with the performance in the AWS business. Now over a $20 billion run rate.

As for the outlook, Amazon projected sales between $47.75 billion to $50.75 billion with operating income between $300 million and $1 billion. That wide range compares to $1 billion in operating income in the first quarter of 2017.

CEO Jeff Bezos in a statement talked up Alexa's ecosystem and that the company will "double down" on the personal assistant. "We've reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers, customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa, and we're seeing strong response to our new far-field voice kit for manufacturers," said Bezos.

Other key figures:

  • Technology and content expenses were $22.62 billion for 2017, up from $16.08 billon in 2016.
  • AWS sales were up 45 percent in the fourth quarter.
  • North America e-commerce fourth quarter sales were 62 percent of revenue with international representing 30 percent. AWS was 8 percent.
  • Subscription services, notably Prime, delivered fourth quarter revenue of $3.18 billion.
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