Late last week (February 1) e-commerce giant Amazon Q4 2017 Earnings Call. The call was led by Amazon’s Director of Investor Relations, Dave Fildes and Brian Olsavsky Amazon’s Senior VP & CFO.
The pair detailed impressive results including a revenue surge of 38% to $60.5 billion, surpassing analysts’ expectations for sales of $59.83 billion. The retailer’s profits more than doubled to $1.9 billion; receiving a $789 million boost from the Republican tax bill passed in December.
After the brief results statement the pair went on to answer questions from the analysts participating in the call, not surprisingly private brand will continue to play a significant strategic role in the coming year.
Relevant questions included:
Youssef Squali – SunTrust Robinson Humphrey
We’ve seen that the number of private label products on the site has increased pretty dramatically over the last 12 to 18 months. Could you speak to your private label strategy, in general? How big is that segment today? How big can it become? And just broadly speaking, how are the margins in that segment versus comparable third-party products?
Dave Fildes – Amazon
Yes, thanks for the question. This is Dave. I think broadly, when we look at our strategy, it’s focused on, number one, providing a broad selection for customers across a number of categories, so that they can find and buy exactly what they’re looking for. When you look at private brands, it’s very much meant to supplement that great selection, and we look for ways to be able to find private label items that have a high-caliber of quality, but also can bring that selection and that convenience for customers and really supplement what vendors and sellers are already providing the customers in many cases. We’ve not broken out kind of how significant or how large that is. I think for a lot of these initiatives, when you look across categories that would offer, many of them are still earlier stage and have been around even from kind of infancy for shorter period of time, a year, a couple of years, in some cases.
Amazon Fashion is one area where you’re seeing us offer a number of private apparel brands and some of the more popular lines with customers things like Good Threads, Amazon’s Essentials, which is men’s and women’s basics; consumables, is, of course, another big area where we have the benefit of working with some of the Whole Foods private label, but also doing some of our other Amazon brands, things like Happy Belly and Wickedly Prime and others. So, I think we’ll continue to iterate on those and try to find different areas. And certainly, there’s other verticals that I didn’t mention there that we’re interested in continuing to kind of learn from customers what they want and what they’re looking for there, and so we’ll keep adding selection.
Douglas Anmuth – JPMorgan Chase & Co.
Brian, I was hoping you could talk about how you’re thinking about your primary investment areas in 2018 and perhaps if you could put it in context of ’17. There are things that are notably different this year relative to last year and also, how you think about the margin trajectory relative to what we saw last year.
Brian Olsavsky – Amazon
Sure. I will be giving you guidance quarter by quarter, but I can talk to the general trends in the large investment areas. Let me start with AWS infrastructure and the growth in technical and sales teams. That will continue. We’re [indiscernible] $20 billion run rate in top line revenues for AWS, up from 18% — actually $18 billion last quarter. So we’re very happy with both the progression in new services and features that we’ve been able to bring to customers and also their response with continued geographic expansion and continuing to again build on our tech teams and our sales teams. So that would — that expense is going to continue and likely increase. Prime benefits will continue to increase as well. Prime Now — excuse me, Prime Video, Prime Now, AmazonFresh, all of our major Prime benefits, we continue to expand globally.
Devices, as Jeff said in the press release, we are very happy with the results of Alexa. It’s a very positive surprise for us both on a — adding a little bit more to that, we had record device sales with very high levels of customer engagement, including increased levels of voice shopping, growth in functionality, growth in our partner, partners we work with, skills that we’ve increased rapidly, we’re over 30,000 skills for Alexa. We’ve got 4,000 plus smart home devices from 1,200 unique brands. So that — the relationships we’re having with external companies is actually helping to accelerate the adoption of Alexa with customers. So really strong usage of — excuse me, Alexa with our devices. Obviously, Echo, Echo Show and the Echo family all directly tied to Alexa, but also Fire TV and tablets and we’re seeing more and more engagement. Alexa usage on Fire TV is up 9x year-over-year.
Music listening time on Alexa was 3x higher this holiday season. So that’s what we mean when we said far exceeding our expectations. Those are the things that I would point to. And that is an area again where we’ll continue to invest heavily, and as you say, double down on that. Fulfillment, again, is — fulfillment capacity, especially the fuel strong top-line growth and growth in Amazon fulfilled the units, which, again, is growing much quicker than our unit growth rate. We expect that and hope that to continue as well into 2018. Video content, we spoke about on the last call. We do like the results we’re seeing with engagement on customers, their buying habits, their engagement with the Video content, their use of it on devices and we will continue to increase our budget in that area. But I’d be really — I’d incorporate that into the guidance each quarter as we move through the year.
