Amazon reported its fourth quarter 2023 earnings on February 1st, beating Wall Street estimates on both revenue and profit. However, shares fell over 4% in after-hours trading as the company warned of slower growth ahead.
Q4 Financial Results Top Expectations
The e-commerce and cloud giant generated record revenue of $170 billion in Q4, up 14% year-over-year. This topped analysts’ predictions of $168 billion. Amazon also saw a significant boost in profitability during the quarter:
- Net income came in at $30 billion compared to a $2.9 billion loss a year ago
- Earnings per share hit $3.02 versus the expected $1.62
- Operating income jumped 48% to $7 billion
According to Forbes, profitability improved due to Amazon’s aggressive cost-cutting efforts over the past year, including mass layoffs announced in early January.
Breakdown By Segment
Amazon generates revenue across several business segments:
| Segment | Q4 Revenue | Growth |
|---|---|---|
| Online Stores | $87 billion | 7% |
| Physical Stores | $10 billion | 12% |
| Third-Party Seller Services | $38 billion | 13% |
| Subscription Services | $10.5 billion | 14% |
| AWS | $22 billion | 20% |
| Advertising | $14 billion | 23% |
The primary drivers of Amazon’s standout fourth quarter were its higher-margin Advertising and AWS cloud divisions.
- AWS revenue accelerated from Q3 as more enterprises adopted its artificial intelligence capabilities
- The pandemic-induced e-commerce boom also boosted its ad business as more sellers competed for prominence across Amazon’s platforms
Record Holiday Sales Boost Results
The fourth quarter encompasses the make-or-break holiday shopping season which typically comprises over 30% of Amazon’s annual revenue.
The company described this past season as its “largest ever,” with particularly robust Prime member engagement. Total online stores sales jumped 7%, while physical store (Whole Foods and Amazon Fresh) sales were up 12%.
Key factors driving Amazon’s blockbuster holiday performance:
- Ongoing inflation and recession fears led price-conscious consumers to Amazon for deals
- Investments in logistic infrastructure enabled faster shipping times
- New Thursday Night Football streaming deal increased Prime sign-ups
The successful quarter affirmmed Amazon’s dominance as the “clear winner” of the 2022 holiday season.
Cautious Commentary Weights on Stock
Despite the Q4 beat, Amazon shares sank over 4% after-hours. The conservative forward guidance appeared to spook investors.
In the earnings release, Amazon said it expects net sales growth to decelerate to between 2-8% in Q1 2023. This would mark one of its slowest revenue growth rates ever outside of the pandemic period.
The tepid outlook reflects concerns over:
- Post-holiday e-commerce normalization
- Potential AWS slowdown mirroring peers
- Continued economic uncertainty weighing on consumer spending
While the guidance hints at tougher comps ahead, most analysts remain bullish on Amazon’s prospects. Wedbush analyst Michael Pachter called the results “music to my ears,” citing better-than-feared margins. Meanwhile, BMO Capital’s Daniel Salmon wrote that Amazon is successfully “shifting focus to profits.”
With Amazon still the “800 lb gorilla” of global retail and cloud, most analysts see the disappointing outlook as merely a speed bump rather than sign of serious trouble. For long-term investors, Amazon remains well-positioned to capitalize on the inexorable shifts towards e-commerce and cloud computing worldwide.
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