Amazon just shared its fourth-quarter financial results, surpassing predictions in both earnings and revenue. However, the tech giant left investors a bit uneasy with a less-than-stellar outlook for the coming period, leading to a dip in the stock of over 5% in after-hours trading.
Let’s break down the numbers Amazon revealed compared to Wall Street’s forecasts: they posted earnings per share of $1.86, topping the expected $1.49. Revenue hit $187.79 billion, edging past the anticipated $187.30 billion, figures from LSEG indicated.
Notably, Wall Street kept a close watch on a few crucial revenue segments:
- Amazon Web Services reported $28.8 billion, aligning with expectations,
- Advertising revenue logged in at $17.3 billion, falling slightly short of the $17.4 billion prediction based on StreetAccount data.
Looking ahead, Amazon projects its sales to range between $151 billion and $155.5 billion for this quarter, falling shy of analysts’ $158.5 billion projection according to LSEG. The company highlighted that their forecast factors in a significant hit from unfavorable foreign exchange rates, amounting to $2.1 billion, or 1.5%.
The U.S. dollar index, measuring the dollar against a basket of foreign currencies, had previously surged to a two-year high, just before President Donald Trump took office. It began climbing in late November through mid-January before experiencing a slight decline.
Amazon’s guidance suggests a modest revenue growth of 5% to 9% for the first quarter. Should it land on the lower spectrum, it could mark their slowest growth since going public in 1997. In contrast, their fourth-quarter revenue enjoyed a 10% boost from $170 billion the previous year.
Significantly, net income nearly doubled to $20 billion, or $1.86 per share, compared to $10.6 billion, or $1 per share, the year before. Driving these gains was Amazon CEO Andy Jassy’s rigorous cost-cutting measures initiated in late 2022. This fiscal discipline saw over 27,000 corporate roles slashed across 2022 and 2023, with layoffs continuing into recent times.
By minimizing expenses and leveraging the robust performance of its profitable cloud sector, Amazon managed to bolster its profits. Over the period, their operating margin, after accounting for business running costs, ticked up to 11.3%, from 11% in the previous quarter and 7.8% in the fourth quarter of the preceding year.
Despite a slight miss on consensus estimates, Amazon’s cloud division enjoyed faster growth than the same quarter last year. Revenue in this segment swelled by 19%, up from a 13% increase a year ago. However, AWS is yet to match the rapid growth seen by rivals, as Microsoft and Alphabet reported their cloud services grew by 31% and 30%, respectively.
In its recent quarter, Amazon American investments peaked at $27.8 billion compared to last year’s $14.6 billion, reflecting their aggressive initiatives in data centers and AI-powered technology using Nvidia processors. This move aims to address rising competition in the AI space from players like OpenAI’s ChatGPT, Google’s Gemini, Microsoft Copilot, and AI startup Anthropic, with Amazon being an investor.
Amazon’s CFO Brian Olsavsky mentioned that the company plans to elevate capital expenditures to $100 billion by 2025, up from around $83 billion in 2024. This spending leap is primarily to support AWS and meet the demand for AI services, alongside bolstering tech infrastructure for their North American and international markets.
CEO Andy Jassy also emphasized their strategic investments in AI, unveiling a suite of new AI models named Nova, along with homegrown Trainium chips. He expressed that though these benefits will be more evident over time, they represent groundbreaking advancements in today’s rapidly evolving tech environment, eagerly anticipating customers’ innovative applications.
Meanwhile, tech firms, including Amazon, are under intense scrutiny from investors to validate their hefty AI spending. The recent launch of DeepSeek’s R1 model from a Chinese startup, developed in just two months at under $6 million, has upended the notion that significant capital is essential for cutting-edge AI development, challenging major players like OpenAI.
On the advertising front, revenue climbed by 18%, hitting $17.3 billion as brands continued to aggressively secure prime exposure on Amazon’s platform. Over recent years, Amazon has emerged as a leading force in digital advertising, trailing just behind Alphabet and Meta in the U.S.
As we stand, Amazon’s shares marked a 9% rise for the year as of Thursday’s close, building on a 44% surge in 2024, outperforming the Nasdaq’s 29% gain.
Keep an eye out for Amazon’s Jamil Ghani discussing Prime’s 2024 performance.
