Prime fuels Amazon fourth quarter profit

Prime fuels Amazon fourth quarter profit

An increase in Prime membership subscriptions helped Amazon to a fourth quarter profit.

The e-commerce giant has been under pressure from investors to return a good result after reporting a loss for the previous two quarters of its financial year, but shares recovered yesterday (29th January) upon the news it posted a fourth quarter profit.

Following the financial statement, shares rose more than 14% in after-hours trading.  This is a marked improvement from the previous two quarters' results, which prompted shares to fall by 20% from the start of 2014 following losses.

For the fourth quarter, Amazon made a net profit of $214m (£142m), compared to $239m (£159m) in the same quarter in 2013. However, profits were up from losses of $437m (£290m) in the third quarter of last year.

Net sales increased 15% to $29.33bn (£19.45bn) fourth quarter. International sales for the retailer, including the UK, were up 3.2% to $10.6bn (£7bn) fourth quarter.

A 53% increase in Prime membership helped the company to achieve its fourth quarter profit, and Amazon’s founder Jeff Bezos revealed the membership grew by 50% in the US and “even a bit faster outside the US.”

The company has done a lot to entice customers to sign up to its Prime membership recently. It offered students free Prime membership if they joined the Amazon Student service  last June, while it revealed in November that Prime members would be able to use 10,500 new Amazon collection points with the Royal Mail for free. For £79 a year in the UK, the Prime service offers customers free one-day deliveries on items, free access to the Kindle Lending Library and  the ability to read one of four Kindle pre-release books a month.

A strong performance in cloud computing also helped the retailer to its fourth quarter profit and Amazon also resolved its long-running dispute with Hachette in the fourth quarter.

In the UK, the company said its “busiest Black Friday ever”, raking in more than 5.5m sales, boosted its performance, while it named four Kindle Fire tablet devices (Fire HD 6, Fire HD 7, Kindle Fire HDX 7" and Fire HDX 8.9) among its top sellers in the fourth quarter, along with the Kindle Paperwhite e-reader, despite Waterstones m.d James Daunt reporting earlier this month that Amazon devices had not sold well over the Christmas period  . No book titles, either in physical or digital format, were listed among the fourth quarter big sellers. Instead the company listed Disney Frozen Sparkle dolls, Haig Club Scotch Whisky and Best Ever Retro Sweets Gift Boxes among the other most popular items for UK customers.

Despite net sales of $89bn (£59bn) for 2014 as a whole, the company made a loss in 2014 of $241m (£160m).

Amazon forecast net income for the current quarter to be anywhere between a $50m profit and $450m loss as it warned its results were “inherently unpredictable”.

Bezos said: “Prime is a one-of-a-kind, all-you-can-eat, physical-digital hybrid — in 2014 alone we paid billions of dollars for Prime shipping and invested $1.3 billion in Prime Instant Video. We’ll continue to work hard for our Prime members.”