Amazon’s fourth-quarter net revenue rose 11% to $187.8bn ignoring exchange rate impacts. Growth was broad-based across all divisions, with AWS growing at the fastest pace, up 19% as expected.
Operating profit grew 61% to $21.2bn (£19.0 bn expected), driven by improvements in AWS and the ecommerce business.
Free cash flow rose from $36.8bn to $38.2bn on a trailing 12-month basis. Including leases, net debt was $48.8bn at the end of the period.
For the first quarter of the new year, net sales are expected to grow to between 5-9% to $151.0-$155.5bn. Operating profit for the quarter is expected to grow from $15.3bn to between $14.0-$18.0bn (consensus: $18.3bn).
The shares were down 3.4% in pre-market trading.
Our view
Amazon delivered a knockout quarter, but a touch of softness in first-quarter guidance sent shares into a post-earnings wobble. Some of the softness in first-quarter guidance looks to be a result of the stronger US dollar and the lapping of a leap year which we think a longer-term investor needn't be too worried about.
The retail business's recovery story is still providing a major tailwind. Margins have been resuscitated following better revenue and gargantuan cost-saving efforts, including layoffs. Amazon has a dominant position in the e-commerce market, and its Prime membership ties it all together in a nice bow of recurring revenue.
In the longer term, we see room for the shift toward e-commerce to keep growing. Management is confident in its ability to expand margins further by scaling facilities and increasing robotics. We like Amazon’s position, but low-cost competitors remain a threat.
Through AWS, Amazon remains a leader in cloud services. This is Amazon’s most lucrative growth driver, especially with the AI boom. Companies rely on AWS for core IT infrastructure, and with the new wave of AI demand, computing power is the hottest commodity. Amazon’s Bedrock platform was launched earlier this year and gives access to a range of the best models from the likes of Meta, Mistral and Anthropic, along with tools to help businesses leverage this new technology.
The aggressive 2025 investment guide is key and mirrors sentiments from other mega-cap players. Like Microsoft and Alphabet, Amazon noted leaving cloud growth on the table as they couldn’t ramp up AI compute capacity fast enough. This raises a small question mark around AWS revenue growth in the coming quarter, with growth a little lumpy until a potential reacceleration later in the year.
We're also supportive of growth in services like Prime, and the group's advertising arm. It's been impressive to see the latter continue its strong progress. Troves of data footprints and millions of customers ready and willing to click buy are a marketer's dream.
With AWS showing its dominance and the retail business looking stronger than it has for some time, we think Amazon looks well placed. The valuation is at the higher end of the scale when compared to the broader market, so earnings expansion is key to keeping things moving in the right direction.
If weakness is to come, it’ll be from one of two areas - e-commerce, driven by weaker consumer conditions, or an AI wave that runs out of steam. Both risks are worth monitoring.
Amazon key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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