Amazon (NASDAQ: $AMZN) is a major online retailer. It also provides various web services, including cloud computing, online advertising, and digital streaming. The company is also heavily involved in the development of AI.
Q4 Earnings Release
On Thursday, February 1, 2024, during after-hours trading, Amazon released its Q4 earnings report to a positive reception. The company delivered a strong performance; driven by accelerating growth in its cloud computing segment, AWS, and early traction in new initiatives like generative AI applications. Operational improvements led to lower costs and boosted profitability across various units.
Financial Highlights
Amazon posted Q4 revenue of $170 billion, up 14% on an FX-neutral basis. It had an operating income of $13.2 billion, up 383% year-over-year, and a trailing 12-month free cash flow of $35.5 billion, up $48.3 billion from last year. For 2023, revenue grew 12% to $574.8 billion, and operating income tripled to $36.9 billion.
AWS Growth Reaccelerates
AWS revenue accelerated to 13% yearly growth in Q4, up from 12% in Q3. Over most of 2023, AWS experienced slowed growth as companies cut back on cloud spend. However, Amazon CFO Brian T. Olsavsky said they were seeing those cost optimizations diminishing.
The strong AWS backlog, which grew over $45 billion in 2023 to $155.7 billion, drove growth through long-term deal conversions. Early traction in AWS’ generative AI offerings, like Amazon Q, an AI Chabot for businesses, had further accelerated revenue growth.
Lower Costs Drive Margin Expansion
All three of Amazon’s reporting segments showed strong margin expansion in Q4, aided by structural reductions in cost to serve. In North America, margins jumped 120 basis points quarter-over-quarter to 6.1%.
The increase was driven by cost reductions from the regionalization of fulfillment networks, increased automation, and lower transportation/labor costs. International losses shrunk by $1.8 billion as similar efficiency efforts yielded results.
CEO Andy Jassy said further regionalization refinements, optimization of inbound fulfillment processes, and inventory placement changes could drive more cost reductions in 2024. The company believes it can better its pre-pandemic cost to serve levels.
Generative AI Driving New Customer Experiences
A major highlight was the launch of Amazon’s first consumer-facing generative AI application – the shopping assistant Rufus. Rufus provides personalized buying advice and recommendations using Amazon’s expansive product catalog and customer data.
As Jassy explained, “Rufus lets customers discover items in a very different way than they have been able to on e-commerce websites.” Amazon is betting on generative AI to “reinvent so many customer experiences” across its businesses.
While in the nascent stages, Jassy expects Amazon’s investments in this technology to drive “tens of billions of dollars of revenue over next several years.”
The company is building dozens of AI applications spanning Alexa, advertising, retail recommendations, advertising copywriting, fulfillment demand forecasting, and more. Enterprise interest is also increasing rapidly, with thousands of customers already using AWS’ Bedrock and Amazon Q platforms.
Strong Topline Growth Across Businesses
Besides AWS and advertising, Amazon’s online and physical stores saw accelerated growth in Q4. Advertising grew 26%, stores grew 13% in North America, while third-party seller services grew 19%.
Within retail, strength was broad-based across various categories. Improved Prime member delivery speeds drove increased purchase frequency and strong holiday sales events performance. New selection additions across electronics, apparel, consumables, and homewares also boosted growth.
The increase in profitability and cash flows also helped Amazon regain the resilience of a balance sheet that was weighed by nonperforming investments and negative free cash due to the coronavirus pandemic.
With growing confidence in the direction of the AWS cloud business and early indicators in initiatives that were big bets in the healthcare subdivision, satellites, sports broadcasting, and generative AI applications, Amazon is back to pre-pandemic levels.
Amazon (AMZN) Stock Performance
AMZN stock experienced a significant surge in price on February 2, 2024, reaching a high of $172.50. A few minutes before the closing bell, the stock was trading at $171.73 per share on February 2, 2024. Momentum remained high throughout the day, pushing the stock towards levels last seen in March 2022. The impressive fourth-quarter earnings report drove the day’s rise, which came out after markets closed on Thursday, February 1, 2024.
Is Amazon Stock a Buy Right Now?
Amazon will likely maintain its market share in online retail while remaining competitive in sectors like cloud computing and online advertising. It can achieve that while improving efficiency and margins. Its foray into new areas, such as generative AI and healthcare, has paid off thus far.
However, there is a risk that economic headwinds, including a change to online data laws, could impede the deployment of some of the latest products. The company’s broadening profit margins and its entry into new areas should enable it to ride any headwinds that come its way. Consequently, Amazon stock is a buy.
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