Amazon Continues To Impress Shareholders With Strong Revenue Growth

Amazon (NASDAQ:AMZN) announced its fourth quarter results on February 1, reporting a 30% increase in net revenue to $60.5 billion for the quarter. The e-commerce giant has reported a strong period of growth in the last few years, driven by its core commerce business as well as Amazon Web Services (AWS). Amazon reported healthy double digit growth in all segments through the December quarter. The company also managed to improve profitability, with operating income surging 70% on a y-o-y basis to $2.1 billion. Similarly, net income was up almost 150% on a y-o-y basis to $1.9 billion. The company attributed the surge in net income to a $789 million provisional tax benefit from the U.S. Tax Cuts and Jobs Act of 2017. As a result, EPS for the quarter stood at $3.75, much higher than the consensus expectation of around $1.75.

We are in the process of revising our $1000 price estimate for Amazon’s stock, which is significantly lower than the current market price. Amazon’s stock price surged from $750 at the beginning of last year to around $1400 currently, and is up by over 25% from the beginning of the year. We have summarized Amazon’s Q4’17 results on our interactive dashboard where you can also change expected revenue and income margin figures for Q1’18 to gauge how it would impact expected EPS for the quarter.

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Key Growth Metrics

AWS revenues were up by 42% through the first three quarters of the year to $12 billion. This trend continued in Q4 with 45% growth in revenue to $5.1 billion. AWS is the most profitable segment for Amazon, with a 26% operating profit margin for Q4’17. This trend is expected to continue in the near term, with Amazon likely to continue to reinvest AWS earnings into international expansion and new ventures.

Non-AWS revenue streams also reported strong growth. North America revenues (including e-commerce, subscription and Amazon product sales) increased by around 30% through the first three quarters of the year to $69 billion. This trend also continued in the December quarter with a 42% y-o-y increase in N.A. revenue to $37.3 billion.

Similarly, international revenues were up over 29% over the comparable prior year period to $18 billion for the quarter. However, Amazon International segment operated at a loss of $900 million for the quarter. Amazon has incurred higher operating expenses in international markets to fuel its aggressive expansion plans. The company has had to spend considerably, with a significant portion of these operating expenses allocated towards fulfillment expenses, marketing expenses and promotion costs, which are higher than expenses in markets where Amazon already has a strong presence. This trend is expected to continue in the near term as the company prepares to battle international competition from the likes of Alibaba (NYSE:BABA). As a result, operating margins are likely to remain relatively low in the near future.

March Quarter Guidance

Amazon completed the Whole Foods acquisition in late August and announced a few new developments in the AWS business and the consumer business (mainly Alexa and Echo). While these developments in the consumer market could help drive long-term results, the company’s current growth is expected to come from existing businesses, including core e-commerce as well as AWS. In the first quarter, Amazon expects its overall revenue to grow around 34-42% on a y-o-y basis to around $49 billion. Better than expected profit margins and EPS in the December quarter has led to some optimism among analysts. Consequently, consensus estimates for Amazon’s earnings per share for the December quarter stand at around $1.80 per share, compared to around $1.48 in the prior year period. You can modify the expectations for revenue or operating income for Q1’18 on our interactive platform to gauge how they impact expected EPS.

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