Amazon's Earnings Bounced Back On The Back Of Holiday Shopping And Its Cost Discipline

On Thursday, Amazon.com Inc AMZN topped analyst estimates with its quarterly results thanks to a record holiday season. After earnings rebounded, Amazon also guided for accelerating cloud growth. 

Fourth Quarter Had A Record-Breaking Holiday Season

For the quarter that ended on December 31st, the Seattle-based company reported its pre-tax earnings rebounded from 2022’s comparable quarter ($2.7 billion) to $13.2 billion, topping analyst estimates of $10.4 billion. Revenue also increased 14% to $170 billion, also surpassing analyst estimates of $166.3 billion.

Advertising Developments

Excluding the impact of currency exchange, advertising revenue growth accelerated to 26%  as Amazon continues to grow its high-margin advertising business by introducing ads to its Prime Video streaming service. 

Cloud Is Expected To Gain Steam 

AWS which is one of Amazon’s key profit drivers reported a YoY increase of 13% to $24.2 billion, rising also MoM from December’s 12% after a prolonged slowdown as the macroeconomic environment pressured customers to identify ways to cut costs. Earlier this week, its cloud rival Microsoft Corporation MSFT reported its Azure cloud grew an impressive 30% YoY, leaving behind Alphabet GOOG Google Cloud at 25.7%. However, Google Cloud growth did accelerate from the previous quarter, but still dropped YoY as it grew 32% during last year’s comparable quarter. Microsoft also reported that AI services boosted the revenue of its Azure cloud platform in the latest reported quarter more than they did during the previous quarter.

Infusing AI Across The Business

Amazon rolled out Amazon Q to rival generative AI assistant that Microsoft developed, alongside a suite of AI services and hardware. On Thursday, Amazon also unveiled its AI shopping assistant that will be answering customer questions as well as making recommendations. Microsoft went from talking about AI to infusing it across its services and applying it at a scale, so it is only logical that Amazon did the same.

Last year, Amazon’s capital investments fell more than $10 billion YoY to $48.4 billion due to lower logistics-related spending. But this year, capital spending will increase, as like Microsoft and Google, Amazon announced it will be committing greater funds to develop its AI infrastructure. 

First Quarter Guidance

Amazon guided for revenue in the range between $138 billion and $143.5 billion and for pre-tax earnings between $8 billion and $12 billion, adhering to analysts’ forecasts. 

Amazon’s Earnings Bounced Back

With its fourth quarter, Amazon closed out a robust 2023. Amazon bounced back from last year’s operating losses as margins at its online store and North American business improved with significant cost cutting efforts, a reorganization of its gigantic US logistics network and last but certainly not least, resilient consumer spending during a record holiday season.

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