To The Moon

$Amazon.com(AMZN)$

In today’s article, I’ll let you know whether I did after Amazon’s Q4 earnings announcement. We’ll cover several key aspects, starting with how massive this business has become in terms of revenue. Among the so-called "Magnificent 7" or FAANG stocks, Amazon is generating unparalleled revenue numbers.

One of the most exciting developments is how Amazon’s e-commerce segment is now nearly as profitable as AWS. There was a time when that seemed impossible, but CEO Andy Jassy has successfully transformed the retail business into a profit machine.

We'll also dive into Amazon’s Q1 guidance. Plus, we'll take a closer look at capital expenditures, especially since major cloud providers’ spending habits are a hot topic. If you’re like me and have some money in semiconductor stocks, Amazon’s $27 billion expenditure on property, plants, and equipment last quarter is something to watch. Unlike Google, Microsoft, or even Oracle—where capex is largely data center-driven—Amazon’s spending also includes warehouses. Still, this marks a significant acceleration compared to last year and even the previous quarter.

Beyond the fundamentals, we’ll analyze Amazon’s stock from a technical standpoint. Shares have been fluctuating in after-hours trading, potentially presenting a buy-the-dip opportunity.

Is Amazon Still a Winning Stock?

Investing can sometimes be straightforward. One of the first things I check when analyzing a stock is whether it’s outperforming the S&P 500. If it isn’t, regardless of how much I like the company, it’s not worth considering.

In Amazon’s case, the stock has outperformed the S&P 500 over the past year, five years, and even the last decade. While past performance doesn’t guarantee future success, Amazon continues to show strong trends. In Q4, revenue grew by 10.5%, reaching $187 billion—no surprise given the holiday season.

However, Amazon’s Q1 guidance came in lighter than expected, which put pressure on the stock in after-hours trading. The company forecasted revenue between $151 billion and $157 billion, while Wall Street was expecting closer to $158 billion, with high-end estimates reaching $161 billion. Even Amazon’s high-end projection falls short of those expectations.

This raises questions about Q2 and Q3. Can Amazon hit $163 billion in Q2? Will they reach $175 billion in Q3? Time will tell, but with Amazon’s diverse business units, there are plenty of moving parts.

Cost Control Under Andy Jassy

One key difference between the Jeff Bezos era and now is Amazon’s cost management. In the past, revenue growth often came with skyrocketing operating expenses. Now, despite 10% year-over-year revenue growth, Amazon has significantly improved cost controls—something investors should take note of.

We'll break down Amazon’s different business segments, including third-party seller trends, and analyze how the company is positioning itself for the future.

Take a look at Amazon’s fulfillment costs—they increased from $26 billion to just $28 billion, a modest rise. Technology and infrastructure expenses saw a similarly small increase, moving from $22 billion to $23.5 billion, which is less than 10%. Sales and marketing inched up from $13 billion to $13.1 billion, while general and administrative expenses (G&A) actually decreased from $3 billion to $2.9 billion, despite Amazon bringing employees back to the office. The company has done a great job managing costs in this area.

These efficiencies have had a massive impact on operating income, which skyrocketed from $13 billion last year to $21 billion—an $8 billion increase. Amazon is now generating $21 billion in operating income for the quarter and $68 billion for the full year. The fourth quarter was strong in terms of revenue, but Andy Jassy’s cost management efforts also made it an outstanding quarter for profitability. While we won’t see this repeated on a $155 billion revenue quarter, this is where Amazon stands today.

Net income tells a similar story. It doubled from $10 billion last year to $20 billion in the most recent quarter, giving Amazon plenty of capital to reinvest. The company’s cash flow statement highlights this strength, showing $45 billion in cash flow for the quarter. However, despite net income doubling, operating cash flow only saw a modest increase from $42 billion to $45 billion year-over-year.

Investment

Amazon continues to invest heavily in its infrastructure, including cloud computing and AI. While some of its property, plant, and equipment spending includes warehouses, that expansion has slowed since the pandemic-driven surge. Last year, Amazon spent $4 billion on capital expenditures (capex), but in the most recent quarter alone, they spent a staggering $27.8 billion—more than doubling.

To put this in perspective, Amazon’s capex in the previous quarter was $22 billion, meaning they ramped up spending by $5 billion in just three months. As I’m recording this ahead of the earnings call, I expect more details to emerge, which I’ll likely discuss on the weekend’s semiconductor show at Equity Empire and the Friday FAANG Stock Recap. The capex figure could influence Amazon’s stock movement, as investors will be watching closely.

If this $27 billion quarterly spending continues, Amazon could be on track for a $100 billion capex year—up from $83 billion last year. While the company generated $15 billion in operating cash flow over the past 12 months, it’s clear that a large portion of cash flow will be reinvested rather than accumulating on the balance sheet.

We’ve been highlighting Amazon’s cost-cutting efforts since Andy Jassy took over, and the results are clear. The e-commerce business, long viewed as a high-revenue but low-margin segment, is now a profit machine. North America’s e-commerce division generated $9.3 billion in operating income, while the international segment, which was largely unprofitable outside of a few quarters during the pandemic, brought in $1.3 billion. Combined, Amazon’s e-commerce operations delivered over $10.5 billion in operating income—essentially matching AWS.

Of course, fourth-quarter revenue tends to be higher due to the holiday shopping season, but the broader trend suggests that we may be just a year or two away from Amazon’s e-commerce business consistently outpacing AWS in profitability. AWS is still growing, generating over $107 billion in revenue over the past 12 months and delivering a solid $40 billion in operating profit. The segment remains a steady performer, consistently adding over $1 billion to operating income.

Looking at Amazon’s balance sheet, the company is sitting on a massive cash reserve—about $101 billion. However, it is offset by $52 billion in long-term debt, so while Amazon has significant liquidity, it’s not entirely free capital. The company also carries a fair amount of inventory, which has seen a slight uptick. While this may not be a major concern, it could be related to changes in third-party seller dynamics.

For years, Amazon’s third-party seller business was a high-growth segment, consistently posting mid-teen to 20% growth rates. However, recent pricing adjustments and policy changes have led to a slowdown, with growth now at just 9%. It’s possible that Amazon is compensating for this by increasing its own inventory as a first-party seller. Meanwhile, Amazon’s online stores grew 8%—a notable reacceleration from the mid-to-low single-digit growth rates seen in prior quarters. Physical stores, including Whole Foods, also posted strong 8% growth, which is an excellent sign.

Advertising, however, has seen some deceleration, with growth slowing to 18%. This is partly due to the slowdown in third-party sellers, who traditionally drive a significant portion of Amazon’s ad revenue. While major brands like Procter & Gamble also buy ad space, much of Amazon’s ad revenue is fueled by independent sellers promoting their products. To reaccelerate ad growth, Amazon will likely need to make selling on its platform more attractive—potentially by lowering fees or improving seller incentives.

For context, Amazon’s ad business is now growing more slowly than even Microsoft’s, which operates a much smaller advertising ecosystem. Microsoft’s ad revenue was up 21-22% in the most recent quarter, surpassing Amazon’s 18% growth. If Amazon wants to close this gap, improving third-party seller engagement will be key.

Subscription services, including Prime memberships, grew by 10% in the latest quarter, while AWS maintained a steady 19% growth rate. Other segments, including entertainment assets like MGM’s movie catalog, surged by 177%. At some point, Amazon may need to reclassify this segment as it continues to expand rapidly.

Financially, Amazon remains in a strong position. Despite the stock fluctuating in after-hours trading—down 3-5%—the overall trend has been bullish since late 2022. The stock has even broken out of key resistance levels, particularly in the $160-$180 range, where it had consolidated for some time.

When evaluating Amazon’s stock, I like to keep things simple—I set up price channels and look to accumulate when the stock is trading in the lower half of the range. While revenue guidance was slightly weaker than expected, Andy Jassy has transformed Amazon into a profit-generating machine. This will allow the company to continue funding its growth initiatives while remaining profitable.

Amazon also has a mountain of cash on hand, and how they decide to deploy it will be interesting—especially as we enter a potential "Trump 2.0" era, where regulatory attitudes toward acquisitions may shift. Under the Biden administration, Amazon was blocked from acquiring a relatively small robot vacuum company. If the regulatory environment becomes more favorable, Amazon may put its cash to work with strategic acquisitions.

Let me know your thoughts in the comments—are you buying Amazon at these levels? Also, if you have any insights on the latest capex figures, drop them in the discussion. Looking forward to a great conversation! Good luck with your investments!

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.