Amazon (AMZN) reported its fourth-quarter earnings, beating Wall Street estimates with $170 billion in revenue versus an expected $166.2 billion. The company released its forecasts for its first quarter 2024 claiming sales will be between $138 billion and $143.5 billion, within Wall Street expectations of $141 billion. Shares of the company began to trend up after the report was released.
Wedbush Securities Managing Director Scott Devitt and Seaport Global Analyst Aaron Kessler join Yahoo Finance to discuss Amazon's earnings results and the performance of the online retailer's various segments and business properties.
Kessler points to Amazon's AWS (Amazon Web Services) as a source of success, given its high margin operations and growth, alongside its retail segments: "Then on the retail side they talk about better regionalization and shipping costs which are reduced because of that. They have gotten really more focused on cost structure within the retail business."
Devitt explains how the different pieces of the company work synergistically, aiding to their success: "Think of Amazon in five pieces. The retail business is first-party, third-party, and a logistics business. There's an advertising business that's success is driven by the ownership of the marketplace and you have AWS built out of the infrastructure of Amazon. You could get away with AWS being a separate entity, certainly. But when you think about the AI aspects of the business now with the cloud business integrated into that operation, I'm not sure that that's the case either. At a high level, these are all very well-integrated aspects to the business."
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JULIE HYMAN: Not quite as eye-popping, I guess, as Meta but still not too shabby to see the shares up by 5% and in particular after the sales increase of 14%, and then the sales and importantly operating income forecast for the company's current quarter. Scott, I'll start with you on this one and kind of, again, high level what stands out to you about Amazon.
SCOTT DEVITT: Well, the operating income in the quarter is a massive beat. They guided at the high end of $11 billion. The consensus was below that. We were above that. 11 billion, the guide, just to be fair was lower than what they reported in the third quarter, which only happened two times in the company's history, and that was during the post-internet bubble period. So it seemed pretty clear they were going to clear that hurdle.
But at 13.2 billion, which is what they did in the quarter, you have a trajectory that's leading the company towards a 10% bogey in 2025 now, which is not something that investors were expecting. So the underpinnings of the business now with the health of the retail business post-pandemic, the success of the advertising business, and now the recovery of AWS supported by rising margins, we think Amazon has quite a long way to go from here.
JULIE HYMAN: And the level of complexity at Amazon always is kind of amazing in terms of all the different businesses that they're running. So if we look at where that's these sort of efficiencies are coming from, that's allowing them to boost that operating income, Aaron, what do you think that they really have really improved the most here?
AARON KESSLER: Yeah. There's two key things. One, I'd say, on AWS, which is a very high-margin business, I think it was 129% last quarter. Probably in the high 20s this quarter as well. So that's just a mixed shift towards faster growth. Advertising is, obviously, a very high margin business that grew 27% year-over-year in the quarter.
Then on the retail side, they talked about better regionalization and shipping costs, which are reduced because of that. And so they've gotten really more focused on cost structure within the retail business. And so this is really starting to all come together now really. Kind of retail costs are under control. AWS had some reductions there. And then advertising still growing like gangbusters.
So two of your high-margin businesses seeing nice growth, and retail seeing better operating margins as well.
JULIE HYMAN: Well, and on that same point, Scott, how are you thinking about the synergies between all these businesses? I mean, they talk a lot in the statement about, you know, they've got-- obviously, they have Whole Foods. They have One Medical now that they're adding on as an additional subscription option for Amazon Prime subscribers. They've got the new ad tier on Amazon Prime for that matter.
Like, is everything sort of working in concert? Or do investors need to think of this as just all of these disparate businesses?
SCOTT DEVITT: I don't think it's disjointed. I mean, you bring up Whole Foods and health care, that maybe is a topic for a different conversation. But if you think of Amazon in five pieces, the retail business is first party, third party, and logistics business. There's an advertising business that's success is driven by the ownership of the marketplace. In AWS, that was built out of the infrastructure of Amazon.
You know, you could get away with AWS being a separate entity certainly. But when you think about the AI aspects of the business now with the cloud business integrated into that operation, I'm not sure that that's the case either. So at a high level, these are all very well-integrated aspects to the business. Health care is a huge bet on the future. And layering that into Prime, because it's something It's a huge problem that consumers have that Amazon is attempting to help them solve, that makes sense.
Whole Foods, you know, it's a project that's I think they're still trying to figure out. If I'd say there's one thing in the business that's not going as well as maybe anticipated, it would be that grocery business where they could still do quite a bit more work to make it better.
JULIE HYMAN: And then, Aaron, finally, when you're looking at Amazon, what-- is there anything you don't like in these numbers, or is there risk that you're paying attention to going forward?
AARON KESSLER: Yeah. I think clearly on the call, I think the AWS growth rate will be a big focus for 2024. AWS growth was slightly below our estimate, we're at 14%, but largely in line with the street for Q4. We'd like to see AWS get back to mid-teens growth for 2024. And so we'll look out for any additional commentary on the conference call with regards to the growth rate into Q1 and potential for '24.
JULIE HYMAN: Aaron, Scott, thank you so much. Really helpful context here as we try to make sense of these numbers, these rapid fire numbers coming at us. Really appreciate it. Thank you.
