Amazon's (AMZN) Q4 Earnings Fall Y/Y, Sales Beat Estimates
Amazon.com AMZN reported fourth-quarter 2022 earnings of 0.03 cents per share, declining 97.8% year over year.
AMZN’s net income, totaling $0.3 billion, is inclusive of a pre-tax valuation loss of $2.3 billion in the non-operating income associated with its investment in Rivian Automotive.
The adjusted bottom line figure stands at earnings of 21 cents per share, beating the Zacks Consensus Estimate by 40%.
Net sales of $149.2 billion rose 9% year over year. The figure exceeded management’s guidance of $140-$148 billion. Further, the metric surpassed the Zacks Consensus Estimate of $145.4 billion.
Amazon witnessed a $5-billion impact of unfavorable fluctuations in foreign exchange rates, without which year-over-year net sales growth would be 12%.
Nevertheless, the robust performance delivered by Amazon during the holiday season drove top-line growth. Notably, it witnessed record-breaking sales during Thanksgiving till Cyber Monday, during which small businesses in the United States generated above $1 billion sales.
In the overall fourth-quarter scenario, AMZN experienced year-over-year growth of 6% in its physical stores sales, which stood at $4.96 billion in the reported quarter.
Strength in Prime was a positive. Amazon witnessed 13% growth in its subscription services sales, which were $9.2 billion in the reported quarter.
Strengthening relationships with third-party sellers remained a positive. In the reported quarter, sales generated by third-party seller services rose 20% on a year-over-year basis to $36.34 billion.
Sales from robust advertising services increased 19% to $11.56 billion.
However, the company witnessed sluggishness across its online stores, from which it generated sales of $64.53 billion, down 2% year over year.
Also, the slowdown in growth of AWS was concerning.
Coming to segmental details, North America revenues (63% of sales) rose 13% from the year-ago quarter’s level to $93.4 billion. International revenues (23% of sales) declined 8% year over year to $34.5 billion. Amazon Web Services’s (AWS) revenues (14% of sales) rose 20% year over year to $21.4 billion.
Inflationary pressure, global supply-chain constraints, geopolitical tensions, unfavorable foreign-currency fluctuations, uncertainties in the labor market and recessionary fears will remain concerning for Amazon in the days ahead.
AMZN has lost 18.7% over the past year compared with the industry’s decline of 18.1%.
Shares of Amazon fell 4% in pre-market trading due to its weak guidance for first-quarter 2023 sales and slowing AWS growth.
Nevertheless, Amazon’s strong global presence, growing Prime momentum, strengthening of AWS portfolio, improving Alexa skills, an expanding smart devices portfolio, and growing efforts toward gaining strong traction among small and medium businesses are likely to drive its near-term financial performance.
Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote
Prime & Retail Efforts
Amazon continued to make strong efforts to bolster its Prime program and the retail business.
The growing momentum of AMZN’s Same-Day Delivery service across the United States remained a major positive. In the reported quarter, the company made more fast deliveries across major metropolitan areas such as Los Angeles, San Francisco, Phoenix, Sacramento and Portland.
The company’s fulfillment strength continued to contribute well with its growing focus on technical advancement. It introduced a robotic system called Sparrow at its first fulfillment center in the fourth quarter.
Amazon’s increasing number of deliveries using electric delivery vehicles from Rivian was another positive.
The expanding original content and overall content portfolio on Prime Video continued to accelerate Prime engagement. The rising number of local originals across the world remained another major positive.
On the back of The Lord of the Rings: The Rings of Power, Prime Video attracted more than 100 million viewers across the world, making it the most watched Amazon Original series in every region. The series got streamed for more than more than 24 billion minutes.
It streamed many original series and movies, including titles like The English, Dr. Seuss Baking Challenge, My Policeman and Good Night Oppy.
It streamed the third season of Tom Clancy’s Jack Ryan. Prime Video finished the Thursday Night Football season well with strong viewership.
In the quarter under review, the company brought HBO back to Prime Video Channels, which is a positive.
AWS continued to gain customer momentum in the fourth quarter, courtesy of its highly reliable services portfolio and the increasing number of data centers, availability zones and regions.
In the third quarter, Amazon introduced AWS Clean Rooms, AWS Supply Chain, AWS SimSpace Weaver, Amazon Security Lake and Amazon DataZone.
In the quarter under review, the company launched an infrastructure region in Switzerland, namely AWS Europe (Zurich). Also, it launched an infrastructure region in Spain, namely AWS Europe (Spain), which marked AWS’s eighth region in Europe. The company launched its second AWS region in India, which is located in Hyderabad.
Notably, AWS was picked by Brookfield Asset Management, American Family Insurance and Stability AI as the preferred cloud provider. Yahoo and Atos selected AWS as their preferred public cloud provider and preferred enterprise cloud provider, respectively.
Descartes Labs and Wallbox went all-in on AWS in the fourth quarter.
Slalom recently extended its global Strategic Collaboration Agreement with AWS. Also, Duke Energy entered a multi-year strategic collaboration with AWS to build new smart grid software and services.
Quarter in Detail
Product sales (47.3% of sales) decreased 1.2% year over year to $70.5 billion. Service sales (52.7% of sales) rose 19.2% from the year-ago quarter’s level to $78.7 billion.
Operating expenses were $146.5 billion, up 9.3% from the year-ago quarter’s level. As a percentage of revenues, the figure expanded by 70 basis points (bps) on a year-over-year basis to 98.2%.
Cost of sales, fulfillment, technology and content, marketing, and general and administrative expenses increased 3.4%, 2.9%, 35.9%, 18.6% and 32% to $85.6 billion, $23.1 billion, $20.8 billion, $12.8 billion and $3.3 billion, respectively, on a year-over-year basis.
Other operating expenses were $759 million in the reported quarter compared with $24 million in the year-ago quarter.
Overall operating income decreased 20.9% from the year-ago quarter’s level to $2.74 billion. The operating margin contracted 70 bps from the year-ago quarter’s level to 1.8%.
Operating income for AWS was $5.2 billion, down 1.7% year over year.
The North America segment reported an operating loss of $240 million, wider than the loss of $206 million reported in the prior-year quarter. Also, the International segment reported an operating loss of $2.23 billion, wider than the loss of $1.63 billion in the year-ago quarter.
Balance Sheet & Cash Flow
As of Dec 31, 2022, cash and cash equivalents were $53.9 billion, up from $34.9 billion as of Sep 30, 2022. Marketable securities totaled $16.1 billion at the end of the fourth quarter, down from $23.7 billion at the end of the third quarter.
Long-term debt was $67.1 billion in the reported quarter, up from $58.9 billion in the previous quarter.
In the fourth quarter, AMZN generated $29.2 billion of cash from operations, up from $11.4 billion in the third quarter.
On a trailing 12-month basis, free cash flow was an outflow of $11.6 billion compared with $19.7 billion in the prior quarter.
For first-quarter 2023, Amazon expects net sales between $121 billion and $126 billion. Net sales are expected to grow 4-8% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for net sales is pegged at $124.46 billion.
Management projects an unfavorable foreign exchange impact of 210 bps.
Operating income is anticipated between $0 and $4 billion.
Zacks Rank & Stocks to Consider
Currently, Amazon carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Computer & Technology sector are Agilent Technologies A, Arista Networks ANET and Impinj PI, all of which carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Agilent has gained 10.2% in the past year. A’s long-term earnings growth rate is projected at 10%.
Arista Networks has gained 9.1% in the past year. The long-term earnings growth rate for ANET is projected at 17.5%.
Impinj has gained 73.3% in the past year. The long-term earnings growth rate for PI is projected at 25%.
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