AWS, Ads, 3rd-Party Sellers Drove Q4 Amazon Sales Growth

Wage increases and higher pricing from third-party carriers supporting its fulfillment network, plus the COVID-19 omicron variant and capacity constraints due to a tight labor market, contributed to $4 billion in second-half costs at Amazon, said Chief Financial Officer Brian Olsavsky on a Q4 earnings call Thursday. Amazon plans to offset the costs by a $20 hike in its Amazon Prime membership fee, he said.

The hike in the annual Prime fee to $139 ($14.99 for monthly members, up from $12.99) is the first increase since 2018, Olsavsky said. It kicks in Feb. 18 for new Prime members and will apply after March 25 as current members’ plans renew, he said. He cited additional Prime benefits now available at the higher fees, including prescription savings and “fast, free delivery” from Amazon Pharmacy, plus a growing Amazon Music catalog and Amazon's Prime Reading and Gaming offerings. Same-day delivery is now available in more than 90 metro markets, he said. The number of items available for free shipping is up 50% since 2018, he said.

Q4 revenue grew 9% to $137.4 billion; full-year sales jumped 22% to $469.8 billion, said the company. In the holiday season, third-party sellers -- mostly small and medium-sized businesses, it said -- had record worldwide sales in Amazon’s store, with more than 130,000 third-party sellers worldwide surpassing $100,000 in sales; between Black Friday and Christmas, U.S.-based third-party sellers sold an average 11,500 products per minute, it said.

In a statement, Amazon CEO Andy Jassy noted higher costs due to labor supply shortages and inflationary pressures, saying “these issues persisted into the first quarter" due to omicron. The company is adding staff and scaling operations to bring "even faster delivery to more customers," he said. In Q&A, Olsavsky touted Amazon’s “multiple levels of fast shipping." They include same-day grocery deliveries in 1-2 hours, plus one- and two-day Prime deliveries. The company is “continuing to build capacity that enables us to hit those cutoffs,” said Olsavsky. It’s working to get back to pre-pandemic levels for one-day delivery and is bringing same-day capability to more metro markets, he said.

Referencing pandemic disruption over the past two years, Olsavsky said early on it was about “handling volume without the capacity to handle it and then quickly playing catch-up.” As that was starting to improve, labor “took a turn” in the U.S., and the company had to “scramble to add workers,” he said. It added 273,000 employees in 2021's second half, compared with 400,000 a year earlier, he said. Hiring was strong, “but we could have done better.”

Now, Amazon faces a “different type of labor issue,” with workers taking time off to get COVID-19 tests, Olsavsky said. Those testing positive go on short-term leave for health and safety, he said, citing instances of paying "twice or three times for the same labor hour." If an employee goes on leave, "you're paying them, and you're also paying, potentially, for someone who's covering the shift on overtime," he said.

Some 40% of Amazon’s sales growth is coming from Amazon Web Services, which Wedbush analyst Michael Pachter cited in a Friday investor note as a $71 billion "annualized run rate business," compared with about $51 billion a year ago. Third-party seller services at Amazon generated 25% of total sales growth in Q4, with 56% of all unit sales during the holiday quarter.

Advertising services drove 20% of total sales growth and made up 7% of sales in the quarter, up from 6% year on year. Amazon delivered Q4 revenue “in-line with consensus and operating income well above the Street’s estimates driven by AWS, third-party sellers, and ads,” Pachter said. Shares closed 13.5% higher Friday at $3,152.79.