Amazon.com Inc (AMZN) Com Stk USD0.01

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Previous Amazon.com Inc updates