Amazon Reports Strong Q4 and Full-Year 2024 Earnings, but Future Growth Faces Challenges

Amazon Reports Strong Q4 and Full-Year 2024 Earnings, but Future Growth Faces ChallengesRetail giant Amazon released its fourth-quarter 2024 (ended December 31) and full-year financial results on Thursday. The report showcased Amazon's robust profitability, but its Q1 2025 revenue forecast fell short of market expectations, sending the stock price down over 4% in after-hours trading and raising concerns about future growth prospects

Amazon Reports Strong Q4 and Full-Year 2024 Earnings, but Future Growth Faces Challenges

Retail giant Amazon released its fourth-quarter 2024 (ended December 31) and full-year financial results on Thursday. The report showcased Amazon's robust profitability, but its Q1 2025 revenue forecast fell short of market expectations, sending the stock price down over 4% in after-hours trading and raising concerns about future growth prospects.

Q4 2024 Highlights:

Amazon's net sales for Q4 2024 reached $187.8 billion, a 10% year-over-year increase, slightly exceeding analysts' average expectation of $187.3 billion. Excluding the unfavorable impact of currency exchange rates, net sales grew by 11%. This growth was primarily driven by a strong holiday shopping season, lauded by Amazon President and CEO Andy Jassy as the most successful in Amazon's history.

Operating income reached $21.2 billion, a 60.6% increase compared to $13.2 billion in Q4 2023, significantly surpassing expectations. Net income reached $20 billion, with diluted earnings per share of $1.86, also exceeding analysts' average expectation of $1.49 and representing an 88.7% year-over-year increase (compared to $10.6 billion net income and $1 diluted EPS in Q4 2023).

Amazon's Q4 cash flow was also strong. Operating cash flow increased by 36% to $115.9 billion; free cash flow increased to $38.2 billion compared to the twelve months ending December 31, 2023. Free cash flow less principal repayments of finance leases and financing obligations increased to $35.5 billion over the past twelve months; free cash flow less principal repayments of equipment finance leases and all other finance leases and financing obligations increased to $36.2 billion over the past twelve months.

Segment Performance:

Across its business segments, Amazon reported growth. Net product sales totaled $82.26 billion, and net service sales totaled $105.56 billion, both increasing year-over-year. Specifically:

• Amazon Online Stores: Net sales of $75.56 billion, up 7% year-over-year.

• Amazon Physical Stores: Net sales of $5.58 billion, up 8% year-over-year.

• Third-Party Seller Services: Net sales of $47.49 billion, up 9% year-over-year.

• Amazon Subscription Services: Net sales of $11.51 billion, up 10% year-over-year.

• Amazon Advertising Services: Net sales of $17.29 billion, up 18% year-over-year, slightly below analysts' expectation of $17.4 billion.

• Amazon Web Services (AWS): Net sales of $28.79 billion, up 19% year-over-year, meeting analyst expectations. Operating income was $10.45 billion, a 19% year-over-year increase, exceeding analysts' average expectation of $9.12 billion.

• Other: Net sales of $1.59 billion, up 17% year-over-year.

By geography, North America (US & Canada) net sales in Q4 were $115.86 billion, up 10% year-over-year; operating income was $9.26 billion, up 43% year-over-year. International (UK, Germany, France, Japan, and China) net sales were $43.42 billion, up 8% year-over-year; operating income was $1.32 billion, representing a return to profitability.

Full-Year 2024 Review:

Amazon's full-year 2024 net sales grew 11% to $638 billion, operating income grew to $68.6 billion, net income grew to $59.2 billion, and diluted earnings per share were $5.53. North America sales grew 10% year-over-year to $387.5 billion; International sales grew 9% year-over-year to $142.9 billion; and AWS sales grew 19% year-over-year to $107.6 billion.

Management Commentary and Market Interpretation:

Andy Jassy highlighted Amazon's innovation across its businesses, particularly in AWS, including the launch of the Trainium 2 AI chip, its custom-built foundational models in Amazon Nova, and new models and capabilities in Amazon Bedrock. He believes these innovations will provide customers with greater flexibility and cost optimization, and play a key role in the future technology landscape.

However, Amazon's lower-than-expected Q1 2025 revenue guidance was the primary driver of the stock price decline. While revenue and profit exceeded expectations, the slower-than-anticipated growth forecast, coupled with the slowing growth of AWS compared to competitors (Microsoft Azure and other cloud services revenue grew by 31%, Alphabet's cloud revenue grew by 30%), fueled investor concerns.

Challenges and Opportunities:

Amazon's capital expenditures on AI infrastructure reached record levels, totaling $27.83 billion in Q4. The company plans to invest approximately $75 billion in 2024 and anticipates further increases in 2025 to fuel the development of generative AI services. This has faced questioning from investors, particularly given the performance of the Chinese generative AI model DeepSeek, which achieved comparable results to US models at significantly lower operating costs.

In the e-commerce space, Amazon faces challenges from emerging competitors such as Temu and Shein, which leverage low-priced goods and efficient Chinese supply chains. The Trump administration's pause on the "minimum threshold" policy, while potentially beneficial to Amazon, also impacts Amazon sellers relying on overseas sourcing. Additionally, Amazon itself is sourcing low-cost goods directly from Chinese warehouses via its Amazon Haul business.

Since late 2022, Amazon has undertaken cost-cutting initiatives, including significant layoffs. While these measures offer short-term cost control, they may negatively impact long-term growth and innovation.

Outlook and Stock Movement:

Amazon projects Q1 2025 net sales to be between $151 billion and $155.5 billion, representing a 5% to 7% year-over-year increase, below analysts' average expectation of $158.5 billion. This would be Amazon's slowest growth rate since its IPO in 1997.

Amazon's stock price closed at $238.83 on Thursday, up 1.13%. Following the earnings release, it fell over 4% in after-hours trading. Year-to-date, Amazon's stock is up 9%, and up 44% for the full year 2024.

In summary, Amazon's Q4 and full-year 2024 results demonstrate strong profitability, but the lower-than-anticipated future growth projections have raised investor concerns. Massive AI investments, intense e-commerce competition, and ongoing cost-cutting measures will significantly impact Amazon's future development. The company's ability to maintain profitability while addressing these challenges and achieving sustainable growth will be crucial going forward.