Amazon said in October it expected increased labor and logistics costs to bring challenges to the final quarter of 2021.
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Amazon‘s profit nearly doubled in the fourth quarter as the e-commerce giant was able to offset the rising costs of running its vast e-commerce business with its investment in Rivian, an electric car company. The company also said it would raise the price of its popular Prime membership.
Net sales in the October-December quarter, which includes the all-important holiday season, rose 9% to $137.4 billion. That narrowly missed the $137.6 billion average that analysts had expected, according to Yahoo. The performance was buoyed by sales in Amazon’s ad services and cloud computing sector, which compensated for muted consumer retail spending.
Still, earnings per share almost doubled to $27.75 and trounced analysts expectations of $3.48. Amazon Chief Financial Officer Brian Olsavsky credited the IPO of Rivian, which Amazon had invested in, for boosting net income by $11.8 billion. At the operating level, which doesn’t include the proceeds of investments, operating income nearly halved to $3.5 billion.
Amazon share prices rose after the company released its report, climbing more than 14% in value after a closing price of $2,777.
The drop in operating income highlights the rising cost of labor and logistics costs, expenses Amazon had indicated last year would affect its business as 2021 came to a close. Consumer spending did little to offset those costs, with Amazon’s direct retail business growing a slim 1% in the fourth quarter, compared with a 43% growth rate a year earlier. Holiday shopping fueled a 12% growth rate at the company’s marketplace of third-party sellers in 2021, compared with 54% in the 2020 holiday season.
One way Amazon will address the growing cost of labor and logistics is by raising Amazon Prime membership. Monthly memberships will jump to $15 from $13, while annual memberships will rise to $139 from $119. The changes, the first since 2018, will begin on Feb. 18 for new members and after March 25 for existing members.
The increased costs didn’t prevent Amazon from investing Prime Video content, which the company hopes will attract more subscribers. The company is splashing out for new series, such as an upcoming Lord of the Rings show, and a deal with the NFL for Thursday Night Football deal to build out the service, which competes with Netflix, Hulu and Disney Plus. Those expenditures didn’t prompt the increase in membership prices, Olsavsky told analysts, but they highlight the investment needed to make the service attractive.
The e-commerce giant had warned in October that the fourth quarter would likely be tough because of an increasingly tight labor market. Amazon has significantly built out its warehouse space since the beginning of the pandemic but says it hasn’t been able to fully staff those operations. As a result, it’s offering workers increased starting wages and hiring bonuses. It’s also paying more to move orders to fully staffed warehouses to get them to customers’ doors on time.
Amazon faces challenges from workers. A union vote kicks off on Friday for workers at a warehouse in Alabama. Warehouse workers in New York are also trying to unionize.
The company hasn’t been able to hire as aggressively as it planned. It had set a target of 150,000 new US workers in the fourth quarter but fell 10,000 shy. Omicron also hurt staffing levels and increased labor costs, Olsavsky said, noting that sometimes the company paid three times the typical cost of a worked hour when a worker was out on COVID leave and the company had to pay another worker overtime to cover their shift.
“We can hire well,” Olsavsky said. “We just have to get everyone healthy.”