Amazon reported stronger-than-expected fourth quarter revenue growth of 14% and outshone Wall Street expectations, as its cloud services, advertising, and third-party seller services all outpaced estimates. Net income more than tripled year over year to $9.9 billion or 94 cents per share and revenue rose 16% above what analysts estimated of about $166.0 billion according to FactSet.
Sales for Amazon Web Services, or AWS, surged 13% year-over-year to reach $24.2 billion, while retail sales in general grew 11% year-on-year to $40.5 billion as delivery times improved and more items shipped either same-day or next.They also reduced shipping costs through regional fulfillment centers and new warehouses while revenue from physical store locations including Whole Foods Market and Amazon Go locations saw revenue climb 4% year-on-year for total company revenues to reach $5.1 billion.
Amazon expects fourth-quarter revenues between $160 billion and $167 billion, exceeding estimates by 14% and 27% respectively. Revenue from AWS and advertising should grow 14% and 27% respectively, as large brands and third-party sellers look for ways to increase visibility online marketplace competition through advertising spend with them – growing faster than tech giants Google and Facebook which have experienced slower rates of expansion this year.
On a conference call with investors, CEO Andy Jassy who replaced founder Jeff Bezos last fall) highlighted the impact of an impressive holiday shopping season and ongoing cost-cutting measures taken by Amazon. Jassy said these initiatives are beginning to show results and was quoted in The Journal.
Operating margin at Amazon Web Services increased to 7.8%, the best since early 2021. Revenue exceeded analysts’ estimates by nearly $15 billion and record profits were achieved both for North America and International operations.
Amazon stock rose an impressive 8% after-hours trading following their earnings report, up about 90% since hitting just over $84 a share in December 2022 in response to rising interest rates, inflation fears and recession concerns that hit tech stocks hard.
Fitch Ratings’ senior director David Silverman believes Amazon will still gain market share despite consumer discretionary spending slowdown, due to their “leadership position in e-commerce and cloud computing, good strategic track record, and aggressive investments.” Silverman indicates Amazon may begin slowing its revenue gains after 2024 due to increased competition from Walmart and Alibaba; as well as finding ways to reduce costs while expanding globally.
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