Amazon.com (AMZN) stock is trading higher today, fresh off a new two-year price peak after the company reported a stellar set of numbers for Q4. Fellow FAANG constituent Meta Platforms (META) is also higher after yet another quarter of strong earnings, and Apple (AAPL) shares are lower as the iPhone maker’s earnings failed to please investors yet again.
While Meta Platforms’ CEO Mark Zuckerberg candidly acknowledged 2023 as the “year of efficiency” and the company resorted to aggressive cost cuts, belt-tightening was pretty much the theme across all major tech companies last year.
Speaking with reporters, Amazon’s CFO Brian Olsavsky said that while 2024 won’t be “a year of efficiency type thing” for Amazon, the company will continue to cut costs wherever feasible. “Where we can find efficiencies and do more with less, we’re going to do that as well,” said Olsavsky.
These cost cuts have helped improve Amazon’s margins and profits, and markets have also rewarded the shares for the company’s strong performance. Although the company has refrained from terming 2024 as the “year of efficiency,” the overall tone during the Q4earnings callsuggests that efficiency is the mantra for the company this year - just as the last year.
Amazon Q4 Earnings Analysis
Amazon posted a record net profit of $10.6 billion in Q4, blowing away the previous record of $9.9 billion was set in the prior quarter. The company’s Q4 operating income surged to $13.2 billion in Q4, which was up almost five times from the corresponding quarter last year, and over $2.2 billion higher than the upper end of its guidance. Its full-year operating income was $36.9 billion, which was more than triple what the ecommerce giant reported in 2022.
Amazon generated free cash flows of $36.8 billion in 2023, marking a significant improvement from the previous year, when it reported a negative free cash flow of $11.6 billion. It burned cash in 2021, as well, as the company invested heavily in expanding its capacities amid strong demand growth.
Amazon’s Guidance Tops Estimates
Amazon expects to post revenues between $138 billion and $143.5 billion in Q1, which implies a YoY growth between 8%-13%. The company guided for operating income between $8 billion to $12 billion - which, even at the lower end, is significantly higher than the $4.8 billion that it reported in Q1 2023.
Thanks to the cost cuts, last year U.S tech giants - including Amazon - were able to report profit growth far above their revenue growth. Amazon is not yet done with optimizing its efficiencies, and Olsavsky said that the company would be “careful” with investments.
He also didn’t rule out layoffs, despite the company having cut over 27,000 workers over the last year – which is the highest layoff count among its FAANG peers, on an absolute basis. According to Olsavsky, “We are investing, and we are adding in some areas, but there's a general feeling in most teams that we're looking to hold the line on headcount, perhaps go down, as we can drive efficiencies in the size of our business."
AMZN Stock Forecast
Analysts were the most bullish on Amazon stock among FAANG stocks heading into last night's earnings, and multiple brokerages listed the stock as a top pick for 2024. Analysts’ optimism has paid off so far, as Amazon stock is trading sharply higher today, up more than 6.7% this morning. As a point of reference, the stock's all-time high currently stands at $188.65, set in July 2021 - about 10.9% above current levels.
Amazon’s mean target price of $182.95 is around 15% higher than yesterday’s closing prices. Its Street-low and Street-high target prices are $123 and $230, respectively. We could see more analysts raise the stock’s target price after the company’s strong earnings and guidance.
Why AMZN Stock’s Rally Is Not Over Yet
Even as Amazon stock has risen sharply over the last year, the rally is still far from over. While the company’s cost cuts and focus on efficiency are expected to support the bottom line, its top-line growth is also stabilizing.
The company’s enterprise-focused Amazon Web Services (AWS), whose revenue growth has been falling for the last several quarters, also reported a well-received YoY increase in growth, with revenues rising 13% as compared to an all-time low of 12% in Q3.
Amazon has blamed cost optimizations at customer ends for AWS's slowing revenue growth. During the Q4earnings call Olsavsky was quite optimistic about the business’s outlook and said, “We continue to see the diminishing impact of cost optimizations.”
Generative AI, which Amazon’s CEO Andy Jassy termed an “area of pervasive focus and investment” for the company, is another key long-term growth driver. While the business currently does not contribute much to Amazon’s revenues, Jassy said during the Q4earnings call “We believe it will ultimately drive tens of billions of dollars of revenue for Amazon over the next several years.” Ahead of theearnings call Amazon also announced Rufus – its generative AI shopping assistant – which is expected to increase conversion rates through better product recommendations.
Overall, given Amazon’s reasonably strong outlook and the multiple levers of growth, I believe the stock’s rally is far from over, and it could scale new highs as the year progresses.
On the date of publication, Mohit Oberoi had a position in: AMZN , AAPL , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
