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Amazon Reports Strong Q4 Earnings Despite Disappointing Guidance
Amazon recently announced its financial results for the fourth quarter, showcasing earnings and revenue that surpassed analysts’ expectations. However, the company also provided guidance for the upcoming quarter that fell short, leading to a decline in stock prices in after-hours trading.
Financial Highlights
Here are the key figures from Amazon’s latest earnings report:
Earnings: $1.86 per share, compared to the projected $1.49 as estimated by LSEG.
Revenue: $187.79 billion, exceeding the anticipated $187.30 billion, also per LSEG.
Sector Performance
Scrutinizing sector-specific performance, Amazon Web Services (AWS) generated $28.8 billion, aligning with market expectations. However, the advertising division reported $17.3 billion, slightly missing predictions of $17.4 billion.
Looking forward, Amazon projected sales for the current quarter to fall between $151 billion and $155.5 billion. Analysts had forecasted a more optimistic figure of $158.5 billion.
The company attributed this cautious outlook to an anticipated adverse effect from foreign exchange rates, estimating an impact of $2.1 billion, or 1.5% on revenue.
Exchange Rate Impact
The strength of the U.S. dollar has been a recent focal point, with the dollar index reaching a peak not seen in over two years prior to President Trump’s inauguration. Interpretations of the currency market indicate that while the dollar has seen a rise from late November through mid-January, it has experienced minor declines since then.
Growth Projections
Based on this guidance, Amazon predicts a revenue growth of merely 5% to 9% for the first quarter. Should growth reach the lower end, it would represent the company’s slowest growth rate recorded since going public in 1997.
The report indicated a 10% year-over-year rise in revenue for the fourth quarter, up from $170 billion in the same period last year. Additionally, net income nearly doubled, soaring to $20 billion or $1.86 per share, compared to $10.6 billion or $1 per share the previous year. Since late 2022, CEO Andy Jassy has been implementing cost-reduction strategies, which have included laying off over 27,000 corporate employees across 2022 and 2023, with additional reductions continuing into 2024.
Cloud Division Insights
Amazon’s cloud services experienced revenue growth of 19% in the quarter, although it fell slightly below consensus estimates. In comparison, competitors like Microsoft and Alphabet reported significant gains in cloud revenues, with Microsoft’s Azure growing by 31% and Alphabet’s cloud services increasing by 30%.
The company has invested heavily in infrastructure and technology to maintain a competitive edge, with capital expenditures reaching $27.8 billion in the latest quarter, a sharp increase from $14.6 billion a year ago. These investments are primarily directed towards data centers and advanced hardware, such as Nvidia GPUs, essential for enhancing its artificial intelligence capabilities. This move comes in response to intensifying competition from startups and established firms in the generative AI space, including OpenAI, Google, Microsoft, and Anthropic.
AI Initiatives
In the earnings report, Jassy emphasized Amazon’s focused efforts on artificial intelligence, highlighting the introduction of a new generation of AI models known as Nova and the development of proprietary Trainium chips.
“These benefits are often realized by customers (and the business) several months down the road, but these are substantial enablers in this emerging technology environment and we’re excited to see what customers build,” Jassy remarked.
Conclusion
As Amazon navigates a challenging economic landscape and adapts to the evolving technological landscape, its latest earnings reveal both robust performance and caution going forward. Investors and market analysts will be watching closely for updates and the company’s strategies to sustain growth amidst the backdrop of foreign exchange fluctuations and heightened competition.
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