Finance

Amazon on Thursday announced sales of $35.7 billion, up 22% year over year, and a profit of $482 million, up more than double from the $214 million the company posted the fourth quarter of 2014. The online retailer and digital content company reported that its Fire TV streaming media player is No. 1 in the country and has added more than 1,000 apps, channels and games since September; membership for its Amazon Prime service grew 51% in 2015, and its Prime Video service ended 2015 with double the streaming customers as 2014; and its Amazon Web Services’ Cloud divisions has now become available in a dozen geographic regions worldwide…

“We’re very thrilled with the customer response to Prime Video,” Amazon SVP and CFO Brian Olsavsky said in a call with investors. “Again, when Prime Video is used by our Prime members, it drives adoption and retention, higher free trial conversion rates, and higher renewal rates for subscribers.

“So what we were encouraged by in Q4 was that globally we doubled the number of our Prime members doubled the number of viewing hours of the Prime Video year-over-year. And internationally, we had twice as member Prime members streaming year-over-year. So very encouraged by the pickup and the response of customers.”

Despite the increase in both sales and earnings for the quarter, Wall Street was expecting more, sending shares of Amazon down by more than 10%.

Michael Pachter, analyst with Wedbush Securities, agreed that Amazon had a lot of reasons to celebrate, pointing to the retailer’s North American sales of $21.5 billion, AWS sales of $2.4 billion, and an estimated spending of more than $3 billion in content for Prime (with that investment expected to increase by $1 billion a year).

However, Pachter expressed concerns as well: Amazon’s profitability has been uneven in recent years, delivering lower earnings per share for investors ($1 in 2015 compared to $2.53 a share in 2010), and all that spending on content (and the production of its own content via Amazon Studios) could be pressuring margins to the breaking point.

“Given its continued success in attracting Prime members, we expect Amazon to continue to bid up the prices paid by Netflix for its quality content (as it did recently at Sundance), ultimately pressuring Netflix’s margins on its streaming video business,” Pachter wrote in a note to investors. “It is possible that Amazon will offer some form of entertainment subscription or free ad-supported service on a standalone basis in order to help fund its ever-increasing content spending.

“If a subscription is offered, it could include some combination of movies, television, games, music and literary content, and will likely be priced competitively.”