ii view: Amazon results showcase strengths away from retail

This online tech mammoth now competes in many areas aside from retail. We assess prospects.

Fourth-quarter results to 31 December 2021 

• Net sales up by 9% to $137.4 billion (£101.7 billion)
• Profit including one-off items up 99% to $14.3 billion (£10.6 billion
• Earnings per share up 97% to $27.75

Guidance:

• Expects Q1 sales of between $112 billion and $117 billion, giving year-over-year growth of 3% to 8%
• Expects operating income of $3 billion to $6 billion compared with $8.9 billion in Q1 2021

Chief executive Andy Jassy said: 

“As expected over the holidays, we saw higher costs driven by labour supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron. Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”

ii round-up:

Online retail giant Amazon (NASDAQ:AMZN) reported both a doubling in headline profit following a sharp gain in its Rivian Automotive (NASDAQ:RIVN) electric car investment, along with a planned increase in its US Prime membership fee. 

Profit including an $11.3 billion (£8.4 billion) gain for the recently floated Rivian doubled to $14.3 billion (£10.6 billion), with earnings per share comfortably exceeding Wall Street forecasts. A 17% increase in the US Prime membership fee to $139 per year is its first since 2018 and should help it counter rising costs.

Amazon shares jumped by around 14% in after-hours US trading, reversing a fall of a similar size over the last year. Shares for selling site eBay (NASDAQ:EBAY) are down by 7% during that time, while Chinese online retailer Alibaba (NYSE:BABA) has fallen by more than 50%. 

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The 9% gain year-over-year in fourth-quarter revenue to $137.4 billion (£101.7 billion) was Amazon’s first single-digit gain since 2017 as it now battles tough comparatives from the pandemic. 

Sales for its cloud data, or Amazon Web Services (AWS) business, however, climbed by almost 40% to $17.78 billion. New business deals for AWS during the quarter included signings with both Meta (NASDAQ:FB), the former Facebook, and global investment bank Goldman Sachs (NYSE:GS). 

Revenue for its own advertising business also rose by almost a third from the year ago quarter to $9.7 billion. Amazon previously included the business under ‘other’. The division competes with the likes of Alphabet's (NASDAQ:GOOGL) Google and Meta for the attention of corporate ad spend. 

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Amazon forecasts first-quarter sales of between $112 billion and $117 billion, giving year-over-year growth of 3% to 8%. Q1 results are likely in late April. 

ii view:

Amazon has given investors the chance to buy into a retail revolution. Its diversification into other business areas now include streaming service Prime, competing with the likes of Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS). Devices such as it Fire Table and Alexa speakers compete with the likes of Apple (NASDAQ:AAPL), and its cloud data AWS business now goes toe to toe with industry rivals Microsoft (NASDAQ:MSFT) and Alphabet. Fourth-quarter revenue of over $17 billion leaves AWS as a sizeable business in its own right.   

For investors, the emergence of economies from lockdowns is diluting the tailwind Amazon previously received during the pandemic. It faces tough comparatives at the same times as having to tackle supply chain challenges and increased costs. The debate over appropriate tech valuations is ongoing, while government concerns about the growing dominance of tech giants persists. 

But the core retail business is now also accompanied by significant other businesses, all of which are accompanied by sizeable geographical diversity. The valuation suggests that analysts still anticipate high growth, while the upping of its Prime membership fee should help combat elevated inflation and business costs. In all, and while some caution remains sensible, an estimated analyst consensus fair value price of over $4,000 suggests plenty of room for long-term growth.  

Positives

• Dominant position in online retailing
• The Amazon Web Services (AWS) business is now a major global player

Negatives

• The threat of increased regulation across many of its markets
• Subject to tech valuation concerns

The average rating of stock market analysts:

Strong buy