Boom Amazon holiday earnings blow away expectations (thanks to Rivian), stock spikes

After saying that it could have no operating profit at all in the fourth quarter, Amazon tops $14 billion in net income, with a huge chunk coming from investment in Rivian electric-vehicle startup

Amazon.com Inc. executives thought that supply-chain and staffing concerns could wipe away their holiday profit.

They were wrong.

Amazon AMZN, -7.81% reported fourth-quarter profit of $14.3 billion, or $27.75 a share, after reaping earnings of $11.73 a share in the holiday season a year ago, with $11.8 billion attributed to the company’s investment in Rivian Automotive Inc. RIVN, -6.16%, which went public in the quarter. Sales grew to $137.4 billion from $125.56 billion the year before, a then-record total that Amazon surpassed in Thursday’s report.

Analysts on average expected Amazon to report $3.61 in earnings — despite a forecast that said a break-even quarter from an operating standpoint was possible — on sales of $137.68 billion, according to FactSet. Shares jumped more than 14% in after-hours trading following release of the results, after closing with a 7.8% decline at $2,776.91.

“As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to omicron. Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic,” Chief Executive Andy Jassy said in a statement included with the results Thursday. Jassy was announced as the successor to Amazon co-founder Jeff Bezos a year ago, when Amazon revealed its 2020 holiday performance.

Amazon predicted it could struggle for profit in the holiday season because of immense spending tied to supply-chain and staffing issues as well as the company’s attempt to improve Prime delivery service times, but beat the top end of its forecast range with $3.5 billion in operating profit. That does not mean Amazon didn’t spend as expected — cost of sales increased more than $3 billion, to $82.84 billion from $79.24 billion a year ago, while fulfillment costs rose to $22.45 billion from $18.74 billion. Those costs are expected to be an issue moving forward as well.

“We find it hard to imagine Amazon escaped the incremental cost inflation leading up to Christmas, and expect those pressures, along with Amazon’s penchant to invest for future growth, to weigh on profit through at least [the first half of the year], strength in AWS and advertising notwithstanding,” Benchmark analyst Daniel Kurnos wrote in a preview of the report, while forecasting an operating loss for Amazon’s holiday season but maintaining a “buy” rating and $4,000 price target.

Amazon also announced that it will increase the price of its Prime subscription service as it attempts to speed delivery for those subscribers, the first increase in the price in nearly four years. Subscribers will pay $139 a year, or $14.99 a month, for the service, which was previously $119 a year, or $12.99 a month, an increase that takes effect for new subscribers Feb. 18 and renewals as of March 24.

AWS’s operating profit was greater than Amazon’s $3.5 billion total as a whole because the core e-commerce business was unprofitable, especially outside the U.S. Amazon reported an operating loss of $206 million on sales of $82.36 billion in the U.S., and an operating profit/loss of $1.63 billion on sales of $37.27 billion internationally during the holiday season.

Amazon for the first time Thursday showed off the performance of one of its fastest growing businesses, advertising. Amazon’s ad business has been growing for years, as merchants who sell on the company’s e-commerce platform pay to get their goods higher in search results, leading to competition with online-ad titans Alphabet Inc.’s Google GOOGL, -3.32% GOOG, -3.64% and Facebook Inc. FB, -26.39% Amazon had included advertising revenue with some other businesses before breaking it out Thursday.

“We have looked at the proportion of other revenue that [was] advertising services and we got to a point where I did pretty much mention every quarter the majority of that line item was advertising revenue, and [it reached] a certain size that we should break it out and split the other off of that,” Chief Financial Officer Brian Olsavsky said when asked by an analyst why Amazon began reporting ad revenue.

Amazon disclosed quarterly advertising revenue of $9.72 billion over the holidays, up 32% from a year ago and 27% sequentially. For the full year, Amazon recorded ad revenue of more than $31 billion, more than the annual revenue from Google’s YouTube ($28.85 billion) and more than 4.5 times the annual revenue total of Snap Inc. SNAP, -23.60% and Pinterest Inc. PINS, -10.32% combined.

For the fiscal first quarter, Amazon executives forecast operating profit of $3 billion to $6 billion on net revenue of $112 billion to $117 billion. Analysts on average were expecting operating profit of $6.4 billion on net sales of $120.94 billion, according to FactSet.

Amazon stock has struggled since executives predicted the holiday season may not be that profitable in its previous earnings report, falling more than 17% in the past three months as the S&P 500 index SPX,
-2.44% declined 1.5%.

The strong results in both AWS and advertising show the growing power of the company’s diversification push—and they suggests that the issues that were evident in the December quarter earnings report from Facebook-parent Meta Platforms (META) are not necessarily suggestive of a broader issue with online advertising. In fact, there is evidence that Facebook could be losing some market share to both Google-parent Alphabet ( GOOGL) and to Amazon.

Meanwhile, the strong AWS numbers confirmed the ongoing surge in corporate computing toward the cloud—note that both Microsoft (MSFT) and Alphabet (GOOGL) reported strong growth for their cloud-computing businesses in the quarter. Microsoft also projected that growth for its Azure cloud business would accelerate in the March quarter.

In a statement, Amazon CEO Andy Jassy said that the company “as expected” saw higher costs over the holidays, driven by labor supply shortages and inflationary pressures, adding that “these issues persisted into the first quarter” due to the Omicron variant of Covid-19. “Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic,” he said.

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