Amazon Joins, Then Leaves, the $1 Trillion Club
January 31 2020 - 05:56PM
Dow Jones News
By Sebastian Herrera
Amazon.com Inc. shares jumped 7.4% Thursday, reflecting the
company's transformation from an upstart famously uninterested in
profits into a giant that generates abundant cash, but fell 8 cents
short of ending the day with a trillion-dollar market
valuation.
The Seattle company spent much of Friday above that milestone
but closed with a total value of $999.96 billion after negative
sentiment prompted a late-day market selloff. Still, broad investor
enthusiasm remains for Amazon, suggesting the company is poised to
cross that threshold and stay there along with other giant tech
companies.
Apple Inc., Microsoft Corp. and Alphabet Inc. each have market
values exceeding $1 trillion.
Amazon surged even on a challenging day for Wall Street after
releasing results showing it had surpassed retail rivals in the
crucial holiday period, signed up a wave of new customers to its
Prime service and far exceeded sales and profit estimates. The
company weathered rising shipping costs with profit stability in
cloud-computing and advertising businesses.
Investors embraced the news as a sign of continued market
dominance, adding about $70 billion to Amazon's market value. The
company reported an annual profit of $11.59 billion, up 15% from
2018. In comparison, the nearly 26-year-old company had recorded
earnings above $1 billion just once before 2016.
Amazon is entering a new era of profitability and set to
generate significant volumes of cash, according to R5 Capital. The
company ended the fourth quarter with approximately $55 billion in
cash and marketable securities.
Amazon blew "Wall Street's expectations out of the water," said
Reid Greenberg, an analyst at consulting firm Kantar, who noted
that the company's profits are growing rapidly in advertising,
where it is capturing market share from Alphabet's Google and
Facebook Inc.
Amazon shares closed higher Friday at $2,008.72. The company had
opened the day trading at $2,051.47 but lost gains throughout the
day. It needed to close at $2,008.80 to cross the $1 trillion
threshold.
This marks the second time Amazon missed finishing out a trading
session above that milestone after crossing it throughout the day.
The company's value briefly reached $1 trillion in intraday trading
in 2018 but never closed above that level.
Amazon's path to $1 trillion began more than two decades ago,
when Chief Executive Jeff Bezos left his position at New York
investment firm D.E. Shaw to begin selling books on the internet.
In his initial shareholder letter in 1997, he set the stage for
many years of losses when he declared the company's indifference to
"short-term Wall Street reactions."
Lately, those reactions have moved sharply in Amazon's favor.
Since trading below $40 in 2008, Amazon's stock has climbed
steadily and accelerated in recent years, in part because cloud
computing and advertising have become reliable profit generators
even as the company continues to invest aggressively in e-commerce
expansions.
The stock jump boosted Mr. Bezos' personal wealth by more than
$10 billion, according to FactSet data. That nearly equals the
combined market value of retailers including Macy's Inc., Kohl's
Corp. and J.C. Penney Co., which reported worse-than-expected sales
during the holiday period.
Amazon's sales from October to December expanded roughly 21% to
a record-breaking $87.4 billion. "We saw essentially very strong
holiday performance from the middle of November on," Amazon Chief
Financial Officer Brian T. Olsavsky said in a call Thursday.
Amazon's gains have continued even as other retailers with a
larger bricks-and-mortar presence struggle. Target Corp. fell short
of its own expectations in the holiday period, citing weak sales in
toys and electronics. The company warned this month that growth for
its full fiscal fourth quarter, which includes January, would
likely fall short of its previously predicted 3% to 4% growth.
Another tailwind was significant growth in Amazon's Prime
membership program, which signed up more new customers in the final
three months of the year than in any other three-month period.
There are now 150 million Prime members world-wide, up from 100
million in 2018.
The company continues to expand Prime through faster shipping
and other benefits. Members pay $119 a year to access free and fast
shipping options, Amazon's streaming service, discounts at Whole
Foods Market and other benefits.
Amazon's 150 million Prime subscribers exceeded by about 15
million the total that James Cordwell, an analyst at Atlantic
Equities, had estimated. "I think that it speaks to some of the
benefits you see as you reaccelerate the business," he said.
Mr. Cordwell says Amazon shares could reach $2,500 over the next
12 months, suggesting a more than 23% rise from current trading
levels.
Bowdeya Tweh contributed to this article.
Write to Sebastian Herrera at Sebastian.Herrera@wsj.com
(END) Dow Jones Newswires
January 31, 2020 17:41 ET (22:41 GMT)
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