Dive Brief:

• Amazon took a hit on Wall Street late Thursday when it reported fourth quarter sales of $43.7 billion, up 22% year-over-year but missing the Thomson Reuters I/B/E/S consensus expectation for $44.68 billion.

• While Amazon posted Q4 net income of $749 million and earnings came in at $1.54 per share, compared to an expectation of $1.35 per share, rising costs — including a 43% increase each in marketing and shipping expenses — outpaced the e-commerce giant's revenue rise and spooked investors, with shares falling more than 4% in after-market trading.

• Amazon forecasts Q1 operating income between $250 million and $900 million, below the consensus estimate of $1.34 billion, from market research firm FactSet StreetAccount cited by Reuters, and down from the $1.1 billion in the first quarter of last year. 

Dive Insight:

As part of its earnings report, Amazon included its usual laundry list of old and new factoids about the company, including the number of jobs it plans to add over the next 18 months (more than 100,000), and the fact that, in addition to global expansions to its Prime Video streaming service, the company released a number of movies into theaters that collected Oscar nominations.

Buried about mid-way through that list: A note indicating that Amazon's Alexa voice assistant-enabled devices were the top-selling products across all categories on its website this holiday season, and that Amazon customers purchased and gifted a record-setting number of devices from the Alexa-powered Echo speaker family, with sales up more than nine times compared to last year. 

Alexa supports a range of services, including voice ordering. “The use of Alexa to me is very impressive, and that in and of itself will improve the marketing to their customers, making it much more targeted and much more focused,” Natalie Kotlyar, accounting firm BDO’s Consumer Business practice leader, told Retail Dive.

Amazon also reported that its Fulfillment by Amazon program delivered more than 2 billion units on behalf of sellers last year and that the number of active sellers using FBA grew more than 70%. Also in 2016, there were more than 100,000 third-party sellers with sales of more than $100,000, and in Q4, FBA units represented more than 55% of total third-party units. That marketplace growth could be one explanation for missing analysts’ expectations, according to Keith Anderson, Profitero VP of strategy and insights.

“Analysts on Wall Street always have a point of view on Amazon, but it’s not always the most important or interesting point of view,” Anderson told Retail Dive. “There’s a pendulum that swings with Amazon between growth and profitability. 80% of the time, they’re heavily biased for growth, and there’s a reason for that: Because e-commerce is about 10% of retail sales. [Amazon founder and CEO Jeff] Bezos often says ‘It’s only day one.’ What he means is this is going to be a market that’s going to grow and grow and grow.”

On a conference call with analysts Thursday evening cited by Reuters, Amazon CFO Brian Olsavsky sounded like someone who knew the pendulum had swung away somewhat, saying “The story is an investment story" and that "stepped-up" spending is continuing this year. Both Kotlyar and Anderson pointed out that, while analysts seemed focused on the revenue miss, the company’s net income fared well.

“I don’t think that the Amazon sky is at all falling,” Kotlyar said. “You can’t ignore the fact that net income is up 55%, and I also think that it’s quite impressive that [for the full year] they had 25% growth in North America and 24% growth in international. That the growth is global is even more impressive.” Also noteworthy was Amazon's capture of some 40% of retail holiday sales, she added.

Anderson likewise noted the retailer's strength over the holidays. “It’s a big deal that they’re able to beat earnings expectations in the fourth quarter, because you always end up staffing up and absorbing the costs of last-minute shipping so you don’t disappoint customers on Christmas Eve,” he said. “I think they’re getting ever more sophisticated at anticipating and managing demand at the peak season.”

And the costs that Amazon is facing in delivery are part of a long-term ramp up, in order to be ready when e-commerce becomes more profitable in the next decade or so — or at least profitable for those with the infrastructure, Anderson said.

“There are two underreported reasons that Amazon is building their own logistics network,” he said. “One is control over the customer experience. Anything that you consider to be strategic, I think Bezos ultimately wants to own because he wants total control over how it operates, which gives him total visibility. [The other] is Amazon is investing now to establish such a moat that by the time anybody realizes what’s happening, it will be difficult to catch up when you look at the capital it would take to built a competing logistics network.”