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June 14, 2024

Amazon’s Earnings Exceed Expectations Despite Economic Uncertainty

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Feb 2, 2024

Amazon reported strong fourth quarter earnings on Thursday, beating Wall Street’s expectations despite ongoing economic turbulence. The e-commerce giant posted revenue of $149.2 billion, up over 9% compared to the same period last year. Profits also topped estimates at $3.0 billion, showcasing the company’s resilience amidst recession fears.

Solid Performance Across Segments

Amazon saw growth across its major business segments:

  • The core retail business grew by 7% year-over-year to $83 billion in net sales. This was driven by Prime subscription revenue and 3rd party seller services.
  • Amazon Web Services (AWS), the company’s cloud computing division, delivered another standout performance – up over 30% compared to Q4 2022. AWS generated nearly $21 billion in sales.
  • Advertising also showed robust expansion, with ads bringing in $11 billion for the quarter – up 25% versus last year.

“Despite economic uncertainties, Amazon has momentum heading into 2024,” said Brian Olsavsky, Amazon’s CFO. “Our relentless focus on providing the broadest selection, exceptional value and fast delivery drove these strong Q4 results.”

The company’s guidance for Q1 2024 indicates that Amazon expects revenue growth to continue, projecting sales between $121-126 billion for the current quarter. This would represent year-over-year expansion of 4-8%.

Business Segment Q4 2023 Revenue Growth vs. Q4 2022
Online Stores $83 billion 7%
Physical Stores $7 billion 17%
Third Party Seller Services $34 billion 13%
Subscription Services $11 billion 14%
AWS $20.9 billion 30%
Advertising $11 billion 25%

Cost Controls Boost Margins

In addition to topping revenue expectations, Amazon also managed to significantly expand profitability last quarter. Operating income rose to $3 billion, up from just $0.2 billion in Q4 2022. This drastic swing demonstrates that cost reduction initiatives implemented over 2022 are now bearing fruit.

“It took work, but we enveloped 2022 in austerity measures that we carried into this year,” said Olsavsky on an earnings call with analysts. “We have eliminated several loss-making initiatives and been more prudent about OpEx across technology investments.”

These steps to enhance efficiency allowed Amazon’s key growth engines like AWS to really shine through in terms of profit contribution. Analysts pointed to margin expansion as the most positive sign in Amazon’s latest report.

“Now that heavy investments in fulfillment/logistics are in place, Amazon has room to drive higher earnings,” said Mark Mahaney, internet analyst at Evercore ISI. “Cost discipline and secular tailwinds for high-margin AWS underpin the bull case here.”

Macroeconomic Uncertainty Remains

The strong close to 2022 comes against the backdrop of growing concerns over a potential recession in 2023-2024. Many economists predict that the combination of slowing growth, persistent inflation and rising interest rates could tip the US economy into a downturn.

Consumer spending has already shown signs of weakening – a troubling indicator given that it accounts for 70% of economic activity. Holiday sales slowed markedly, with Mastercard reporting the smallest expansion in nearly a decade.

So far Amazon has managed to power through the choppy environment, but management struck a cautious tone about macro challenges going forward.

“There is still considerable uncertainty in the economic outlook,” said Olsavsky. “Energy and food costs remain problematic for consumers globally. We will plan prudently for 2023.”

Most experts concur that Amazon’s scale and dominance in e-commerce leave it better positioned than rivals to weather any storms. But a severe or prolonged downturn could dampen growth momentum.

“With its cloud leadership and logistics network, Amazon has buffers other retailers lack,” commented Dan Ives, analyst at Wedbush Securities. “But if the economy meaningfully worsens, no tech giant will be completely insulated from that, Amazon included.”

Outlook for 2023

Despite macro headwinds, early signs point to Amazon delivering another year of steady expansion in 2023. The Q1 revenue guidance suggests low to mid single digit growth is achievable, even if wider economic activity slows.

Key factors likely to support continued gains for Amazon include:

  • Cloud computing – AWS is exhibiting turbocharged growth, cementing its leadership in a $1+ trillion addressable market. Enterprise digital transformation remains in early innings.
  • Advertising – With Google and Facebook struggling, Amazon looks poised to capture more budget share as brands shift ad spend.
  • Cost discipline – Fitness regimen imposed over the past year opens runway for greater efficiency and profitability.
  • Consumer resilience – If inflation cools and consumer spending holds up, Amazon’s reach ensures it captures steady retail demand.

“Amazon has all cylinders firing even with the economy throwing curveballs,” said Tom Forte, analyst at D.A Davidson & Co. “Robust unit growth at AWS plus ad market share gains provide great insulation. The year ahead seems bright for Amazon.”

Though another year of double digit expansion is improbable given present challenges, Amazon remains a dominant force in technology. With pragmatic management and high-growth segments like the cloud, the e-commerce titan seems capable of posting solid mid-single digit gains under most reasonable economic scenarios. For investors, Amazon’s sound fundamentals and history of resilience make it a relative safe haven amidst market turbulence.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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