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Amazon’s net profit weighed down by investments in India, video, and Prime

Amazon’s net profit stood at $749 million for the quarter ended December 2016, up 197.2% from $252 million the preceding quarter and 55% from $482 million in the same quarter last year. Net sales stood at $43.7 billion growing 22% from $35.7 billion in the same quarter last year. On a sequential basis, net sales increased 33.64% from $32.7 billion.

The company’s CFO, Brian Olsavsky, reiterated India as an important area of investment to its operations. “It’s still very early (the market). We continue to say that, but we are very encouraged with what we’ve created with customers and sellers alike in India over the last few years. We continue to develop new functionality for that country, whether it’s delivery, whether it’s seller features. We will continue to build our business there and continue to do a great job for both customers and sellers. We’re bullish on India longer-term and it’s early. But we like the initial engagement we’re seeing and the response from, again, both customers and sellers,” he said on a call with analysts.

Amazon has been pushing its India investments – In December the company made a fresh investment of Rs 2010 crore into its India unit taking the overall investment in India to Rs 7,000 crore in this financial year. The company mentioned that their continued investments in India, video, fulfillment centres and Prime weighed down on their overall profitability.

More notes from the analyst call:

Amazon expanded Prime video to 200 countries: Amazon mentions that it has launched Prime Video in countries that it doesn’t offer e-commerce services, other than countries like India. Olsavsky said, “But more importantly, we have great content that we want to share with people outside of our primary retail countries. And this takes us to over 200 more countries. So we’re very happy with the results in video. Yes, the investment did step up in the second half of last year, including marketing. And that will continue in 2017 and likely beyond.”

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On offline stores: The company launched Amazon Go Store in Seattle in the fourth quarter. According to Olsavsky, “It’s only one store at this time. But it’s using some of the same technologies you would see in self-driving cars; computer vision, sensor, fusion, deep learning. So it’s a great accomplishment by that team. It’s in beta right now and we like the promise of that.”

Note that other than Go, Amazon has several offline bookstores. Olsavsky mentions that “We will be adding more bookstores. But we test, we innovate, we think the bookstores, for instance, are a really great way for customers to engage with our devices and see them, touch them, play with them and become fans.”

On AWS price cuts: Amazon cut the price of its AWS product at various points in the last year. Olsavsky adds that “You are right that we had seven price cuts in Q4. But that’s going to be constant in this business. We’ve been pretty clear that this business is all about creating new functionality for customers, giving price cuts and then working on the operating efficiencies. So, very pleased with Q4 and the pace of the business. The new services and features last year were over 1,000 versus 700 or so in 2015.”

On Amazon Echo & Alexa: Amazon launched its personal assistant device Amazon Echo in the US in 2015, and in Europe last year. According to Olsavsky, “We do look at engagement and we like the engagement of customers who have Echo. But let me step back a minute and give some highlights on that, Alexa and Echo together. Tens of thousands of developers are building new skills for Alexa. So, the skills addition should continue. And just as importantly, tens of thousands of developers are also using the Alexa Voice Service to help integrate Alexa into their products, which then creates a great network effect.”

Fulfillment centers: The company added 26 warehouses in the last year, with 23 added during the 2nd half of the year. It mentions that most of these centers were opened in North America. According to Darin Manney, head of investor relations at Amazon, “Our Amazon Fulfilled units, the amount going through our fulfillment centers and which essentially includes our first-party retail and our FBA sales and it grew nearly 40% over 2016. So we’re very pleased with those results and happy with the fundamentals of the business from that perspective.”

Download: Press release | Transcript

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