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Amazon Earnings: Impressive Retail Profitability and AWS Growth Drive Fair Value Upgrade

Fair value estimate for the stock raised to $185 after strong fourth quarter.

Amazon headquarters.

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What We Thought of Amazon’s Earnings

Wide-moat Amazon AMZN reported strong fourth-quarter results and offered a mixed outlook relative to our expectations, including in-line revenue and better profitability. Improvements in fulfillment and cost to serve continue to drive stronger-than-anticipated profitability in retail. Segment results were good overall, with advertising coming in the strongest relative to our model. After several quarters of strong performance on the profitability front, we are raising our operating margin outlook by 160 basis points for 2024 and similar margin expansion over the next several years. In turn, we raise our fair value estimate to $185 from $155. After a strong run in the shares over the last year, we see the stock as fairly valued.

We continue to see positive developments on the demand front on multiple vectors. Fourth-quarter revenue accelerated to 14% year-over-year growth as reported and 13% in constant currency, and came in at $170.0 billion, compared with the high end of guidance at $167.0 billion. The two key segments, Amazon Web Services and advertising, grew 13% and 27% as reported, respectively, over the year-ago period. Amazon’s advertising growth continues to outpace that of its large internet peers, albeit off of a smaller revenue base. Relative to our model, online stores, third-party seller services, and advertising drove the vast majority of upside, consistent with the last quarter. Subscription services were ahead, AWS and other were in line, and physical stores were slightly shy of our assumptions.

Margins were good across segments, and we continue to believe there is room for further improvements. Profitability was impressive, with operating profit coming in at $13.2 billion compared with the high end of guidance at $12.0 billion, resulting in an operating margin of 7.8% compared with 1.8% a year ago and representing the best fourth quarter in at least a decade.

Amazon.com Stock Price

Data as of Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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