Michael Mann 
Amazon shares fell roughly 4% on Thursday evening despite the e-commerce and cloud giant reporting a stronger-than-expected fourth quarter after the closing bell. The market participants during extended trading took issue with a first-quarter 2025 forecast that missed estimates and a larger-than-expected capital expenditure plan. However, we don’t see either item as thesis-changing. Revenue increased 10% year over year to $187.8 billion, beating expectations for $187.3 billion, according to estimates compiled by LSEG. Earnings per share based on generally accepted accounting principles (GAAP), increased to $1.86, compared with a dollar last year and the $1.49 estimate. Operating income increased 61% over last year to $21.2 billion, beating the $19 billion consensus forecast. Amazon Why we own it: Amazon may be widely known for online shopping, but its cloud business is also a breadwinner. Advertising is another fast-growing business with high margins. Management has been working to aggressively decrease delivery times and reduce overall costs. Prime leverages free shipping and video streaming with tons of other perks to keep users paying every month. Competitors : Walmart , Target , Microsoft and Alphabet Most recent buy date: Aug. 12, 2024 Initiated : February 2018 Bottom line Amazon put together another impressive quarter of profit growth thanks to revenue growth in high-margin streams like AWS and advertising while keeping down costs in its e-commerce business. This quarter would have been even better and revenues would have exceeded the top end of its guidance range if not for foreign exchange, which hit revenues by $700 million more than anticipated. Sure, the first quarter outlook was a little lighter than anticipated, but we’re not stressing over it because Amazon has a history of beating the forecast. Even though the market has turned its back on the runaway spending habits on AI by the big hyperscalers, Amazon CEO Andy Jassy was confident on the call that these investments will be worth it in the long run. “AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the Internet. And so I think that both our business, our customers and shareholders will be happy medium to long-term that we’re pursuing the capital opportunity and the business opportunity in AI” he explained. AMZN 1Y mountain Amazon 1 year Overall, Amazon’s high-margin business lines continue to hum. Management having a line of sight into reducing its cost to serve this year means margins should continue to move up. If margins are going higher, we want to keep owning Amazon. We’re reiterating our 1 rating and raising our price target to $260 from $240. Commentary Cloud unit Amazon Web Services (AWS) revenue increased 19% year over year, marking the third straight quarter of the same annual rate. The results followed a trend we saw from Microsoft’s Azure and Google Cloud this earnings season, with revenue technically missing consensus estimates but essentially in line with still-respectable growth. Like its cloud computing peers, however, Amazon called out capacity constraints as a gating factor to faster revenue growth. “I do think we could be growing faster if we were unconstrained. I predict those constraints really start to relax in the second half of ’25,” Jassy said on the call. Sales at AWS may have come in a touch light, but the operating income performance was better than anticipated thanks to a 732 basis point increase in operating margin. As we’ve pointed out before, 200 basis points of the margin gains are due to the impact of a favorable accounting change. The other big drivers of the margin improvement are unlocking efficiencies at data centers and also reducing costs. As for the rest of the company, Amazon delivered revenue beats across Online Stores (7% revenue growth), Physical Stores (8% revenue growth), and the Other bucket (17% revenue growth), which includes sales of offerings like health care services, shipping services, and co-brand credit card agreements. There were misses in Third Party Seller Services (9% growth), Subscription Services (10% growth), and Advertising Services (18% growth) but nothing was glaringly negative. By geography, North America sales increased 10% and we were pleased to see operating margins expand to 8% from 6.12% last year. In the international segment, Amazon’s revenue increased 8% and that was a slight miss, but operating income was a big beat. International turned in a profit in all four quarters of 2024. One of the big drivers of Amazon’s margin improvement this year was a reduction in the “cost to serve’ its online customers. The regionalization of its U.S. network has been a huge win, reducing costs and speeding up shipping times. But the company is also redesigning its U.S. inbound network, which improves where inventory is placed to get it quickly to customer’s doors. Another initiative is optimizing the number of items it sends to customers in the same package, which reduces costs and is less expensive to fulfill. The company reduced its global cost to serve on a per-unit basis for the second year in a row, and management thinks they can do it again in 2025. On the capital expenditure side, Amazon invested $26.3 billion in the fourth quarter which was higher than the $22 billion estimated. CFO Brian Olsavsky said on the conference call that he thinks this level is the run-rate that will be representative for 2025, implying north of $100 billion in capex. The bulk of these investments will go to support demand for AWS and technology infrastructure. “The vast majority of that capex spend is on AI for AWS. The way the AWS business works and the way the cash cycle works is that the faster we grow, the more capex we end-up spending because we have to procure data center and hardware and chips and networking gear ahead of when we’re able to monetize it,” Jassy explained. We can now confirm that Club names Meta Platforms , Microsoft , Alphabet , and Amazon have all talked about increasing their capex programs and this should ease concerns about a pause in spending on chips made by Club holding Nvidia due to Chinese startup DeepSeek’s low-cost AI model. However, Amazon also talked up its custom AI silicon Tranium 2 and Graviton chips. “Most AI compute has been driven by Nvidia chips, and we obviously have a deep partnership with Nvidia and will for as long as we can see into the future. However, there aren’t that many generative AI applications. of large scale yet. And when you get there, as we have with apps like Alexa and Rufus cost can get steep quickly. Customers want better price performance. It’s why we built our own custom AI silicon,” Jassy said. Guidance Amazon’s first-quarter 2025 guidance was lighter than anticipated, pressuring shares. The company expects net sales of $151 billion to $155.5 billion, representing an increase of 5% to 9% year over year. But the $153.25 billion midpoint and the even high end of the outlook missed the FactSet consensus of $158.5 billion. Unfavorable foreign exchange could be a factor, with management anticipating a $2.1 billion headwind from currency. Amazon expects to generate $14 billion to $18 billion of operating income in the first quarter. This too was a miss at the $16 billion midpoint and high end of the range compared to the $18.5 billion consensus. (Jim Cramer’s Charitable Trust is long AMZN, NVDA, META, GOOGL, MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Amazon shares fell roughly 4% on Thursday evening despite the e-commerce and cloud giant reporting a stronger-than-expected fourth quarter after the closing bell. The market participants during extended trading took issue with a first-quarter 2025 forecast that missed estimates and a larger-than-expected capital expenditure plan. However, we don’t see either item as thesis-changing.
