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January 31, 2019

Amazon has its first $200 billion sales year, but growth is slowing

Amazon now finds itself in an elite group of companies whose annual revenue can be measured in the hundreds of billions.

The company said Thursday that its holiday quarter sales hit $72.4 billion, up 20% from the same period a year earlier and at the high end of its previous forecast. The strong end to the year pushed Amazon's annual revenue to an impressive $232.9 billion.

But sales growth is slowing as Amazon runs up against the law of large numbers. Its 20% sales growth for the quarter was well below the 38% growth it saw in the same period a year earlier.

Amazon also forecast weaker than expected sales for the first quarter of 2019. It said sales would be between $56 billion and $60 billion for the quarter, which would represent annual growth of just 10% to 18%.

As its sales growth has slowed, the company has quickly positioned itself as a profit machine. Amazon reported $3 billion in profit for the final three months of 2018, marking the fifth consecutive quarter that its profits topped $1 billion.

Amazon's total profit for 2018 topped $10 billion for the first time in the company's history, fueled in part by continued momentum for its higher-margin cloud computing service and its nascent advertising business.

Amazon Web Services, which remains the leader in the fast-growing cloud computing market, saw sales jump 45% from the prior year to $7.4 billion, even as it faces stiff competition from Microsoft. Its cloud business topped $25 billion in sales for the year for the first time.

The company's "other" segment, which is largely made up of its advertising business, saw sales nearly double to $3.4 billion in the quarter, as Amazon quietly competes with the likes of Facebook and Google.

The string of billion-dollar profits is a noteworthy feat for a company that was once famous for reinvesting all of its earnings back into the business, often reporting a net loss as a result.

It's all the more remarkable considering Amazon continues to invest heavily in original content, physical stores and fulfillment centers. During the quarter, Amazon also raised the minimum wage for more than 250,000 Amazon employees and 100,000 seasonal workers to $15 per hour.

The company has had a strong start to the year on the market. Its stock was up more than 10% in January. Amazon stock was essentially flat in after hours trading following the earnings report Thursday.

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