Amazon's Q4 Beats, But 2025 Q1 Outlook Sparks Caution

However, looking ahead to the first quarter of fiscal year 2025, the company expects revenue to be between $151 billion and $155.5 billion, which is lower than the market's expectation of over $158.5 billion. A stronger US dollar is expected to reduce earnings by about $2.1 billion, and there are concerns about slower growth.

Core Business Performance: In the fourth quarter, Amazon's net income reached $20 billion, an 88% increase or 11% year-over-year. Diluted earnings per share rose from $1.00 to $1.86, while net profit nearly doubled.

The North American market remained a key driver, with net sales in the region reaching $115.6 billion, showing strong growth alongside improved profit margins. Online retail sales increased by 7% year-over-year, indicating robust consumer demand during the holiday season. Third-party seller services and advertising have contributed significant growth, further diversifying Amazon's revenue mix.

Profit Margins and Cash Flow Improvement: Amazon's operating profit for the fourth quarter reached $21.2 billion, with the operating margin rising to 11.3% from 7.8% in the same period last year. This improvement was largely driven by cost-cutting and efficiency initiatives since late 2022, including large-scale layoffs and business restructuring.

Over the past 12 months, Amazon's operating and free cash flow have grown substantially. Operating cash flow surged to $115.9 billion, a 36% year-over-year increase, providing strong financial support for future strategic investments and potential share buybacks.

Amazon Web Services (AWS), the company's core profit driver, reported net sales of approximately $28.79 billion in the quarter, reflecting a 19% year-over-year increase. Its operating profit margin stood at an impressive 36.9%. While these results met market expectations, the growth rate appeared somewhat conservative compared to competitors Microsoft Azure and Google Cloud, which grew by about 30% and 31%, respectively.

Amazon Web Services (AWS), the company's core profit driver, reported net sales of approximately $28.79 billion in the quarter, reflecting a 19% year-over-year increase. Its operating profit margin stood at an impressive 36.9%. While these results met market expectations, the growth rate appeared somewhat conservative. However, it's worth noting that while Microsoft Azure and Google Cloud grew at around 30% and 31%, respectively, their growth also fell short of market expectations. This and concerns over massive capital expenditures (capex) contributed to the decline in earnings across major cloud providers in the post-earnings.

As competition intensifies in the cloud computing market, Amazon is ramping up investments in artificial intelligence and cloud infrastructure. The company plans to increase its capital expenditures from $83 billion last year to over $100 billion in 2025, with the "vast majority" allocated to expanding AWS capacity and advancing AI services.

Despite AWS's strong profitability, Amazon faces mounting pressure from Microsoft and Google, which are rapidlyexpandin the cloud computing sector. To maintain its market leadership, Amazon must accelerate innovation, optimize data center management, and strengthen its AI offerings—such as the Nova model and in-house Trainium chips.

Challenges like data center expansion and chip supply constraints remain key bottlenecks for AWS's future growth. Balancing high capital expenditures with short-term profitability will be a critical strategic challenge for Amazon's leadership.

Effective Cost Reduction: Since late 2022, Amazon has undertaken major cost-cutting measures, including over 27,000 layoffs and streamlined operational processes. These actions have significantly lowered fixed costs and improved operational efficiency, pushing the operating profit margin from 7.8% to 11.3%. These efforts have enabled Amazon to maintain strong profitability and stable cash flow amid fierce market competition.

Despite a strong fourth-quarter performance, Amazon's revenue guidance for Q1 2025 is between $151 billion and $155.5 billion, notably lower than the market's expectation of $158.5 billion. This cautious outlook is primarily attributed to the strong US dollar, which isexpected to cause a $2.1 billion foreign exchange loss and concerns about future growth momentum. If the revenue growth rate only falls within the 5% to 9% range, it could mark the company's slowest growth rate since going public.

Following the earnings report, while Amazon's overall performance exceeded expectations, the cautious guidance for the future led to a more cautious stance from the market. As a result, Amazon's stock price dropped by about 4% to 5% in after-hours trading. Technical indicators show that while Amazon's stock is on an upward trend, it is facing pressure in the short term.

Benchmark analyst Daniel Kurnos maintained a Buy rating and raised the target price to $265, while JMP Securities analyst Nicholas Jones reiterated an Outperform rating with a target price of $285. These analysts generally believe that despite the short-term risks from conservative guidance, Amazon still has significant long-term growth potential, particularly in AWS and advertising businesses.

Scotiabank analyst Nat Schindler kept an Outperform rating and raised the target price to $306. Additionally, analysts from Morgan Stanley and Mizuho Securities also remain optimistic about Amazon, believing that with AI investments gradually taking shape and improving operational efficiency, the company's profitability will see significant improvement in the future.