Question

Summarize the financial results of amazon for 2018. Include the company's current financial performance and any future implications. Provide at least four key points addressed by management related to the amazon’s current performance and any future implications provided.

Answer 1

Company-wide net sales increased 31 percent in 2018 to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion.

North America contributed $141.4 billion in net sales, and international sales contributed $65.9 billion. Germany was the largest international sales generator with $19.9 billion in revenue, up 17 percent over 2017. The U.K. followed at $14.5 billion, an increase of 28 percent over 2017.

AWS sales grew a healthy 47 percent over 2017, from $17.5 billion to $25.6 billion. While AWS is a much smaller contributor to net sales, it contributed more to total net income than either North American or international product sales, a testament to its high margins and lower costs.

The Other net sales category increased 117 percent, from $4.7 billion to $10.1 billion, thanks to advertising growth. 2018 subscription services net sales — mostly Amazon Prime and digital downloads — grew 46 percent from 2017 to 2018, from $9.7 billion to $14.2 billion.

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AMAZON & MARKETPLACES
Amazon Posts Stellar 2018 Financial Results; 2019 Not as Bright
FEBRUARY 14, 2019 • MARCIA KAPLAN
Amazon's worldwide net sales in 2018 increased 31 percent to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion. 2019 prospects are not as positive, however.
Amazon’s worldwide net sales in 2018 increased 31 percent to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion. The outlook for 2019, however, is not as positive.

Amazon reported its 2018 fiscal year and fourth quarter financial results on January 31. As expected, the company surpassed last year’s results with a superb performance, especially in North America. Product sales, advertising, and Amazon Web Services all exhibited robust growth. Amazon is cautious in its 2019 guidance, however, because of changes in government regulations in other countries and an anticipated increase in expenses.

Fourth Quarter 2018
Thanks to record-breaking holiday revenue, net sales increased 20 percent to $72.4 billion in the fourth quarter, compared with $60.5 billion in 2017. Earnings were $6.04 a share. Net income increased 58 percent to $3.0 billion in the fourth quarter compared with net income of $1.9 billion, in the fourth quarter of 2017.

AWS, the cloud computing platform, was a major contributor to profits with sales growth of 45 percent over 2017, to $7.4 billion from $5.1 billion, and operating income that increased 61 percent, to $2.2 billion from $1.4 billion.

Amazon’s “Other” revenue category, which is mostly advertising, grew 95 percent over the same period in 2017 — from $1.7 billion to $3.4 billion in the quarter.

Sales in physical stores — mostly Whole Foods — decreased 2.7 percent to $4.4 billion. Amazon does not count in-store pickups of online grocery orders as physical store sales.

Full Year 2018
Company-wide net sales increased 31 percent in 2018 to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion.

North America contributed $141.4 billion in net sales, and international sales contributed $65.9 billion. Germany was the largest international sales generator with $19.9 billion in revenue, up 17 percent over 2017. The U.K. followed at $14.5 billion, an increase of 28 percent over 2017.

AWS sales grew a healthy 47 percent over 2017, from $17.5 billion to $25.6 billion. While AWS is a much smaller contributor to net sales, it contributed more to total net income than either North American or international product sales, a testament to its high margins and lower costs.

The Other net sales category increased 117 percent, from $4.7 billion to $10.1 billion, thanks to advertising growth. 2018 subscription services net sales — mostly Amazon Prime and digital downloads — grew 46 percent from 2017 to 2018, from $9.7 billion to $14.2 billion.

Third-party Marketplace Sales
Amazon experienced more sales from third-party sellers during 2018. However, Amazon reports only fees (which analysts estimate at 30 percent of gross merchandise value) as revenue from third-party vendor sales.

In its earnings conference call, Amazon’s CFO Brian Olsavsky stated that more than 50 percent of sales on the marketplace platform came from small-and-medium size businesses in the fourth quarter.

Olsavsky suggested that Amazon might consider changing the fees it charges sellers. “More than half of our units sold are from third-party sellers, so it’s very important to us that we have the right business profile both for Amazon and for the sellers. So we will always be evolving that,” Olsavsky said. “Part of that involves changing fee structures, sometimes adding new fees or subtracting old ones, part of it involves raising or lowering fees that sellers

Amazon's worldwide net sales in 2018 increased 31 percent to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion. 2019 prospects are not as positive, however.
Amazon’s worldwide net sales in 2018 increased 31 percent to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion. The outlook for 2019, however, is not as positive.

Amazon reported its 2018 fiscal year and fourth quarter financial results on January 31. As expected, the company surpassed last year’s results with a superb performance, especially in North America. Product sales, advertising, and Amazon Web Services all exhibited robust growth. Amazon is cautious in its 2019 guidance, however, because of changes in government regulations in other countries and an anticipated increase in expenses.

Fourth Quarter 2018
Thanks to record-breaking holiday revenue, net sales increased 20 percent to $72.4 billion in the fourth quarter, compared with $60.5 billion in 2017. Earnings were $6.04 a share. Net income increased 58 percent to $3.0 billion in the fourth quarter compared with net income of $1.9 billion, in the fourth quarter of 2017.

AWS, the cloud computing platform, was a major contributor to profits with sales growth of 45 percent over 2017, to $7.4 billion from $5.1 billion, and operating income that increased 61 percent, to $2.2 billion from $1.4 billion.

Amazon’s “Other” revenue category, which is mostly advertising, grew 95 percent over the same period in 2017 — from $1.7 billion to $3.4 billion in the quarter.

Sales in physical stores — mostly Whole Foods — decreased 2.7 percent to $4.4 billion. Amazon does not count in-store pickups of online grocery orders as physical store sales.

Full Year 2018
Company-wide net sales increased 31 percent in 2018 to $232.9 billion, compared with $177.9 billion in 2017. Net income increased to $10.1 billion.

North America contributed $141.4 billion in net sales, and international sales contributed $65.9 billion. Germany was the largest international sales generator with $19.9 billion in revenue, up 17 percent over 2017. The U.K. followed at $14.5 billion, an increase of 28 percent over 2017.

AWS sales grew a healthy 47 percent over 2017, from $17.5 billion to $25.6 billion. While AWS is a much smaller contributor to net sales, it contributed more to total net income than either North American or international product sales, a testament to its high margins and lower costs.

The Other net sales category increased 117 percent, from $4.7 billion to $10.1 billion, thanks to advertising growth. 2018 subscription services net sales — mostly Amazon Prime and digital downloads — grew 46 percent from 2017 to 2018, from $9.7 billion to $14.2 billion.

Third-party Marketplace Sales
Amazon experienced more sales from third-party sellers during 2018. However, Amazon reports only fees (which analysts estimate at 30 percent of gross merchandise value) as revenue from third-party vendor sales.

In its earnings conference call, Amazon’s CFO Brian Olsavsky stated that more than 50 percent of sales on the marketplace platform came from small-and-medium size businesses in the fourth quarter.

Olsavsky suggested that Amazon might consider changing the fees it charges sellers. “More than half of our units sold are from third-party sellers, so it’s very important to us that we have the right business profile both for Amazon and for the sellers. So we will always be evolving that,” Olsavsky said. “Part of that involves changing fee structures, sometimes adding new fees or subtracting old ones, part of it involves raising or lowering fees that sellers pay.”

2019 Forecast

Amazon’s guidance for 2019 was downbeat, resulting in the stock falling following the earnings call.

Some analysts speculate that Amazon is entering a period of slower growth. Challenges this year include reviving Whole Foods, where sales have been sluggish. Amazon will continue to look for new international opportunities because two big markets — India and China —have proved to be problematic.

The recent change in Indian law regarding foreign investment — see “New Indian Investment Rules Limit Amazon, Walmart” — caused Amazon India to temporarily remove about 400,000 products from its website and to shut down Pantry, its grocery-delivery service. Amazon has already invested $5 billion in India and was planning an additional $2 billion.

Pantry is back in business, and most of the products removed from the marketplace are back. Amazon accomplished this by reducing its stake in Cloudtail, the largest vendor on the Amazon site, to 24 percent from 49 percent. In turn, joint venture partner N.R. Narayana Murthy’s Catamaran Ventures increased its stake to 76 percent. The change means Cloudtail is no longer considered to be an Amazon group company under India’s rules, making it once again eligible to sell on the platform.

In its 2018 10K report, Amazon stated:

The People’s Republic of China (“PRC”) and India regulate Amazon’s and its affiliates’ businesses and operations in country through regulations and license requirements that may restrict (i) foreign investment in and operation of the Internet, IT infrastructure, data centers, retail, delivery, and other sectors, (ii) Internet content, and (iii) the sale of media and other products and services. For example, in order to meet local ownership and regulatory licensing requirements, www.amazon.cn is operated by PRC companies that are indirectly owned, either wholly or partially, by PRC nationals.

In India, the government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities. For www.amazon.in, we provide certain marketing tools and logistics services to third-party sellers to enable them to sell online and deliver to customers, and we hold indirect minority interests in entities that are third-party sellers on the www.amazon.in marketplace. Although we believe these structures and activities comply with existing laws, they involve unique risks, and the PRC and India are actively considering changes in their foreign investment rules that could impact these structures and activities. There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, and it is possible that these governments will ultimately take a view contrary to ours.

Key Points:

We Have Foreign Exchange Risk
The results of operations of, and certain of our intercompany balances associated with, our international stores and
product and service offerings are exposed to foreign exchange rate fluctuations. Upon translation, operating results may differ
materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances.
As we have expanded our international operations, our exposure to exchange rate fluctuations has increased. We also hold cash
equivalents and/or marketable securities in foreign currencies including British Pounds, Euros, and Japanese Yen. If the
U.S. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, when translated,
may be materially less than expected and vice versa.
The Loss of Key Senior Management Personnel or the Failure to Hire and Retain Highly Skilled and Other Key
Personnel Could Negatively Affect Our Business
We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President, CEO, and
Chairman. We do not have “key person” life insurance policies. We also rely on other highly skilled personnel. Competition for
qualified personnel in the technology industry has historically been intense, particularly for software engineers, computer
scientists, and other technical staff. The loss of any of our executive officers or other key employees or the inability to hire,
train, retain, and manage qualified personnel, could harm our business.
We Could Be Harmed by Data Loss or Other Security Breaches
Because we process, store, and transmit large amounts of data, including personal information, failure to prevent or
mitigate data loss or other security breaches, including breaches of our vendors’ or customers’ technology and systems, could
expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in
litigation or potential liability for us, deter customers or sellers from using our stores and services, and otherwise harm our
business and reputation. We use third-party technology and systems for a variety of reasons, including, without limitation,
encryption and authentication technology, employee email, content delivery to customers, back-office support, and other
functions. Some of our systems have experienced past security breaches, and, although they did not have a material adverse
effect on our operating results, there can be no assurance of a similar result in the future. Although we have developed systems
and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party vendor or customer, such measures
cannot provide absolute security.
We Face Risks Related to System Interruption and Lack of Redundancy
We experience occasional system interruptions and delays that make our websites and services unavailable or slow to
respond and prevent us from efficiently fulfilling orders or providing services to third parties, which may reduce our net sales
and the attractiveness of our products and services. If we are unable to continually add software and hardware, effectively
upgrade our systems and network infrastructure, and take other steps to improve the efficiency of our systems, it could cause
system interruptions or delays and adversely affect our operating results.
Our computer and communications systems and operations could be damaged or interrupted by fire, flood, power loss,
telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-
ins, and similar events or disruptions. Any of these events could cause system interruption, delays, and loss of critical data, and
could prevent us from accepting and fulfilling customer orders and providing services, which could make our product and
service offerings less attractive and subject us to liability. Our systems are not fully redundant and our disaster recovery
planning may not be sufficient. In addition, we may have inadequate insurance coverage to compensate for any related losses.
Any of these events could damage our reputation and be expensive to remedy.
We Face Significant Inventory Risk
In addition to risks described elsewhere in this Item 1A relating to fulfillment network and inventory optimization by us
and third parties, we are exposed to significant inventory risks that may adversely affect our operating results as a result of
seasonality, new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in consumer
demand and consumer spending patterns, changes in consumer tastes with respect to our products, spoilage, and other factors.
We endeavor to accurately predict these trends and avoid overstocking or understocking products we manufacture and/or sell.
Demand for products, however, can change significantly between the time inventory or components are ordered and the date of
sale. In addition, when we begin selling or manufacturing a new product, it may be difficult to establish vendor relationships,
determine appropriate product or component selection, and accurately forecast demand. The acquisition of certain types of
inventory or components may require significant lead-time and prepayment and they may not be returnable. We carry a broad
selection and significant inventory levels of certain products, such as consumer electronics, and we may be unable to sell
products in sufficient quantities or during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.
We May Not Be Able to Adequately Protect Our Intellectual Property Rights or May Be Accused of Infringing
Intellectual Property Rights of Third Parties
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and
similar intellectual property as critical to our success, and we rely on trademark, copyright, and patent law, trade secret
protection, and confidentiality and/or license agreements with our employees, customers, and others to protect our proprietary
rights. Effective intellectual property protection may not be available in every country in which our products and services are
made available. We also may not be able to acquire or maintain appropriate domain names in all countries in which we do
business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We
may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of
our trademarks and other proprietary rights.
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Third parties
that license our proprietary rights also may take actions that diminish the value of our proprietary rights or reputation. The
protection of our intellectual property may require the expenditure of significant financial and managerial resources. Moreover,
the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from
infringing or misappropriating our proprietary rights. We also cannot be certain that others will not independently develop or
otherwise acquire equivalent or superior technology or other intellectual property rights.