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Amazon: Strong Numbers but Weak Outlook

Source The Motley Fool

Here's our initial take on Amazon.com's (NASDAQ: AMZN) financial report.

Key Metrics

Metric	Q4 2023	Q4 2024	Change	vs. Expectations
Revenue	$170.0 billion	$187.8 billion	10%	Beat
Earnings per share	$1.00	$1.86	86%	Beat
AWS revenue	$24.2 billion	$28.8 billion	19%	n/a
International revenue	$40.2 billion	$43.4 billion	8%	n/a

A Strong Holiday Quarter, but What's Next?

Amazon.com reported generally strong fourth-quarter and full-year 2024 results. For the quarter, Amazon beat expectations on both the top and bottom lines. Sales grew by 10% year over year and beat expectations even with unfavorable foreign exchange conditions. The AWS cloud services business continues to be the fastest-growing and most profitable part of the business, growing 19% year over year and accounting for half of the company's operating income despite making up just 15% of total sales.

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Speaking of profitability, CEO Andy Jassy's ongoing efforts to improve Amazon's efficiency are paying off. Operating income increased by 61% year over year, and net income improved by an impressive 86% on a per-share basis.

Beyond the headline numbers, Amazon had a lot of wins in its business. Its Red One holiday movie became its most-watched Prime Video release yet. Plus Prime members received 65% more items same-day or overnight compared with a year ago, just to name a couple of the highlights.

While the fourth-quarter numbers looked rather strong, the first-quarter guidance was another story. Amazon is expecting revenue between $151.0 billion and $155.5 billion, significantly short of the $158.33 billion analysts were hoping to hear. To be fair, some of this is because of a $2.1 billion expected foreign exchange headwind, but even adding this back in, Amazon falls short of expectations.

Immediate Market Reaction

There are few ways that are more certain to make a stock react negatively than to issue disappointing guidance, so it's not a surprise that the initial market reaction was negative. As of 4:15 p.m. ET, about 15 minutes after the earnings release hit the news wire, Amazon's stock was down by 3.5%.

It's worth noting that this reaction came before management's earnings call, and the topics of discussion can certainly cause the stock to move in one direction or the other.

What to Watch

To be fair, Amazon has a strong history of underpromising and overdelivering, so it will be important to keep an eye on how the business actually performs in the first quarter. AWS will be a particularly interesting area to watch, as it is likely to become an increasingly important profit driver as it scales.

Helpful Resources

Full earnings report [PDF]
Investor relations page

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matt Frankel has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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