Cloud computing and online retail behemoth Amazon (NASDAQ:AMZN) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 10.5% year on year to $187.8 billion. On the other hand, next quarter’s revenue guidance of $153.3 billion was less impressive, coming in 3.4% below analysts’ estimates. Its GAAP profit of $1.86 per share was 25.4% above analysts’ consensus estimates.
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Amazon (AMZN) Q4 CY2024 Highlights:
- Revenue: $187.8 billion vs analyst estimates of $187.4 billion (in line)
- Operating Profit (GAAP): $21.2 billion vs analyst estimates of $19.01 billion (11.5% beat)
- EPS (GAAP): $1.86 vs analyst estimates of $1.48 (25.4% beat)
- Revenue Guidance for Q1 CY2025 is $153.3 billion at the midpoint, below analyst estimates of $158.6 billion
- North America Revenue: $115.6 billion vs analyst estimates of $114.3 billion (1.1% beat)
- AWS Revenue: $28.79 billion vs analyst estimates of $28.84 billion (small miss)
- North America Operating Profit: $9.26 billion vs analyst estimates of $7.65 billion (21% beat)
- AWS Operating Profit: $10.63 billion vs analyst estimates of $10.19 billion (4.4% beat)
- Operating Margin: 11.3%, up from 7.8% in the same quarter last year
- Free Cash Flow Margin: 9.5%, down from 17.1% in the same quarter last year
- Market Capitalization: $2.48 trillion
“The holiday shopping season was the most successful yet for Amazon and we appreciate the support of our customers, selling partners, and employees who helped make it so,” said Andy Jassy, President and CEO, Amazon.
Key Topics & Areas Of Debate
For many of Amazon’s big tech peers, the key areas of debate center around revenue growth. Amazon is different, as the focus is on profitable growth due to its consistent reinvestment strategy and the structurally lower margins seen in its e-commerce business, where it must hold physical inventory.
Can Amazon leverage its vast logistics investments of the last two-plus decades while automating more of its operations and leaning into advertising to increase profitability? If so, its North America segment, which consists of its consumer-facing businesses, could see double-digit operating margins in the next few years (it was 10.8% for the last 12 months).
A more profitable North America segment combined with a faster-growing and structurally higher-margin Amazon Web Services (AWS) could mean earnings power that is orders of magnitude larger. Higher earnings typically lead to higher stock prices.
Despite its scale and dominance, Amazon doesn’t operate in a vacuum. Walmart (NYSE:WMT) and Target (NYSE:TGT) - with their improving omnichannel footprints – are competitors to Amazon’s e-commerce and Whole Foods businesses. And while it has a first-mover advantage in the public cloud services market, Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) are working hard to catch up.
Revenue Growth
Amazon shows that fast growth and massive scale can coexist despite the conventional wisdom about the law of large numbers. The company’s revenue base of $280.5 billion five years ago has more than doubled to $638 billion in the last year, translating into an incredible 17.9% annualized growth rate.
Amazon’s growth over the same period was also higher than its big tech peers, Alphabet (16.7%), Microsoft (14.3%), and Apple (8.1%). Comparing the four is relevant because investors often pit them against each other to derive their valuations. When adjusting for these benchmarks, we think Amazon’s price is fair. 
Long-term growth reigns supreme in fundamentals, but for big tech companies, a half-decade historical view may miss emerging trends in AI. Amazon’s annualized revenue growth of 11.4% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong. 
This quarter, Amazon’s year-on-year revenue growth was 10.5%, and its $187.8 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 6.9% year-on-year increase in sales next quarter. Looking further ahead, sell-side analysts expect revenue to grow 10.5% over the next 12 months, similar to its two-year rate. This projection is healthy for a company of its scale and illustrates the market sees some success for its newer products.
Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.
Profitability: The Key Debate
Many investors understand that Amazon’s e-commerce business caps its gross margin, which averaged 44.8% over the last five years. The company lags behind its pure-play tech peers because it sells many commoditized goods online where it must acquire and hold physical inventory.
What the market debates, however, is where Amazon’s long-term operating profitability could ultimately settle. Sure, its five-year margin of 6.4% was weak, but it rose by 4.8 percentage points thanks to leverage on the fixed costs in its consumer-facing businesses and the highly profitable AWS segment becoming a larger portion of its revenue. Our question is if Amazon’s momentum can continue and result in a mid-to-high teen percentage margin somewhere down the line.
The company’s North America segment holds the keys to this answer. Throughout the years, Amazon has made huge investments to not only attract hoards of customers into its ecosystem but also retain them. Some areas of focus in this effort included its unmatched delivery network and video streaming content.
Bulls will argue that Amazon can afford to ease up and begin riding its investments of the last two-plus decades. Wall Street seems to disagree somewhat and is projecting its trailing 12-month operating margin of 10.8% to stagnate in the coming year. Expectations aside, the company’s performance over the last few years supports the higher long-term profitability argument that could potentially lead to earnings and a stock price that follows.
Key Takeaways from Amazon’s Q4 Results
We liked how Amazon beat analysts’ operating profit and EPS expectations this quarter. On the other hand, its revenue and operating income guidance for next quarter both fell short of Wall Street’s estimates. Zooming out, we think this was a decent quarter with mediocre guidance. The latter is weighing on shares, and the stock traded down 3.6% to $230.20 immediately after reporting.
Big picture, is Amazon a buy here and now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
