Amazon.com, Inc. engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally.
Amazon delivered strong fourth-quarter earnings, with net sales increasing 10% year-on-year to $187.79 billion, slightly ahead of expectations, however, shares slipped -4.3% in extended trading on weaker e-commerce and clouding computing guidance. Growth was broad-based, with online store sales rising 7.1% to $75.56 billion, physical store revenue increasing 8.3% to $5.58 billion, and third-party seller services reaching $47.49 billion, reflecting a 9% year-on-year gain. Subscription services, including Amazon Prime, grew 9.7% to $11.51 billion, indicating strong consumer engagement. Amazon Web Services (AWS), the company’s high-margin cloud computing segment, maintained a 19% year-on-year growth rate, generating $28.79 billion in revenue. AWS remains a critical driver of Amazon’s profitability despite falling just short of estimates.
Operating income was a standout metric, soaring 61% to $21.2 billion, well above analyst expectations. This translated to an operating margin of 11.3%, up from 7.8% a year ago, demonstrating the company’s improved cost efficiency. North America’s operating margin reached 8%, up from 6.1%, reflecting operational enhancements, particularly in fulfilment and logistics. The international division, which had previously been a drag on earnings, returned to profitability with a 3% operating margin, reversing a prior-year loss. These improvements highlight Amazon’s ability to optimise its cost structure while continuing to drive revenue growth.
Despite these robust figures, Amazon’s outlook for the first quarter of 2025 disappointed investors. The company projected net sales between $151 billion and $155.5 billion, below the consensus estimate of $158.64 billion. Operating income is expected to range from $14 billion to $18 billion, potentially missing the market forecast of $18.24 billion. Management pointed to foreign exchange fluctuations, which are expected to reduce revenue growth by approximately $2.1 billion. Additionally, the company will face a tougher year-on-year comparison due to the extra day in Q1 2024 from the leap year, which had contributed an estimated $1.5 billion in sales.
AWS remains central to Amazon’s future growth, but the segment is currently facing capacity constraints. CEO Andy Jassy acknowledged that AWS could have grown faster if not for supply chain delays, particularly in chip availability and power infrastructure. These constraints are expected to persist through early 2025 but should ease in the second half of the year as new data centres come online. The company remains committed to its AI-driven cloud strategy, with significant capital expenditure planned to expand its infrastructure. Amazon spent $26.3 billion in capital investments in Q4, largely directed towards AI and cloud initiatives, and expects spending to remain elevated in 2025.
Looking ahead, Amazon’s retail division remains strong, benefiting from continued improvements in logistics and delivery speed. The company has been strategically positioning fulfilment centres closer to customers, enhancing efficiency and reducing costs. This has enabled Amazon to expand its same-day and next-day delivery capabilities, further strengthening its competitive position in e-commerce. Additionally, advertising revenue, an increasingly important segment, continues to grow as more brands leverage Amazon’s ecosystem for product visibility.
While Amazon’s long-term prospects remain positive, near-term growth may be moderated by foreign exchange headwinds, higher investment costs, and AWS capacity constraints. Investors
will closely watch AWS’s ability to accelerate growth, as well as the impact of rising capital expenditures on profitability. However, with strong execution in its retail and cloud segments and a commitment to innovation in AI and logistics, Amazon remains well-positioned for sustained long-term growth.
