On February 6, Eastern Time, after Post-Market Trading, Amazon announced its Q4 results for the fiscal year 2024, ending December 31. Although Amazon performed impressively during the holiday shopping season in the fourth quarter, exceeding market expectations, its guidance for Q1 2025 fell short of market expectations.

At the same time, Amazon's capital expenditure in the fourth quarter significantly exceeded Analyst expectations and set a record. The company expects its total capital expenditure for 2025 to reach 105 billion USD, indicating a substantial increase in investment, which shows that Amazon is actively enhancing support for its AI Business, but also raises concerns in the market about the ultimate ROI of this expenditure.

This year, $Amazon (AMZN.US)$having accumulated nearly a 9% increase, the stock price even set a new historical high during intraday trading on February 4. However, following the earnings release, pessimism spread, causing Amazon to decline sharply in Post-Market Trading, dropping over 7% at one point. Nevertheless, the decline in Pre-Market Trading today gradually narrowed, and as of the time of publication, it is down 2.59%.

Here are the key points from Amazon's Q4 Earnings Reports:

Key financial data:

Revenue: For the season, it increased by 10% year-on-year to 187.792 billion USD, while Analyst expectations were for 187.318 billion USD.

EPS: The adjusted EPS is $1.86, compared to $1.43 in the previous quarter, with Analysts expecting $1.50.

Capital Expenditure: This quarter's capital expenditure is $27.8 billion, significantly higher than the Analysts' expectation of $22.3 billion, reaching an all-time high.

Operating Profit: This quarter's year-on-year growth is 61%, reaching $21.2 billion, with Analysts expecting $18.84 billion.

Amazon CEO Andy Jassy emphasized during the earnings call that the company has been focused on cost-cutting and is prioritizing three major business pillars: retail, AWS Cloud Computing, and advertising.

• Retail Business

By segment, the retail business, which includes online stores, physical stores, third-party seller services, and subscription services, achieved a year-on-year growth rate of 9.1%, slightly down from last quarter's growth rate, in line with market expectations.

Notably, the online store business remains strong, with a year-on-year increase of 7.1% to $75.556 billion, slightly stable compared to the last quarter, which is better than the market expectation of $74.618 billion; however, the third-party seller services underperformed this quarter, with a year-on-year growth of 9.0% to $47.485 billion, below the Analyst's expectation of $48.029 billion; similarly, subscription service revenue was also slightly below market expectations, with a year-on-year increase of 9.7% to $11.508 billion.

By region, retail growth in North America accelerated from 8.7% to 10%, reaching $115.586 billion, better than market expectations, primarily due to record strong purchasing power during the holiday shopping season. In contrast, the international performance was relatively subdued, with revenue growing by 9% year-on-year to $43.42 billion, excluding exchange rate effects, which was below market expectations.

According to the Federal Annual Price Study, entering the holiday shopping season, Amazon has held the lowest online prices among major retailers in the USA for the eighth consecutive year, with average prices 14% lower than other leading retailers, saving over $15 billion.

Amazon's CEO summarized that this quarter, with a firm low-price strategy, Amazon has brought real savings to Consumers in the fourth quarter of 2024; meanwhile, the delivery speed for Prime members has significantly improved, with the number of same-day delivery locations increasing by over 60%, achieving over 9 billion packages delivered on the same or next day globally; in terms of cost control, optimizing the US inbound network service has led to a more than 40% year-on-year increase in on-time arrival rates for ordered products before Black Friday, with expected room for further improvements in the future.

Market analysis believes that a major highlight of this quarter is Amazon's sales performance during the holiday shopping season. During the holiday period, Amazon accounted for nearly half of the growth in E-Commerce in the USA and will continue to increase its market share in overall online sales in 2025.

In addition, in the E-Commerce business, Amazon faces challenges from new competitors like Temu and Shein. However, this month, President Trump announced the suspension of the 'low-value duty-free' trade exemption for packages under $800, a policy that previously allowed Shein, Temu, and other competitors to be exempt from import tariffs on low-priced packages from China.

Analysts believe that this policy change may be Bullish for Amazon, but the company is not entirely unaffected. This is because many of Amazon's third-party sellers rely on overseas supply chains, and the 'Amazon Haul' service launched last November allows low-priced products to be shipped directly to Consumers from Chinese warehouses, typically priced under $20.

• AWS (Cloud Computing) business

This quarter, the most watched revenue from AWS was $28.786 billion, a year-on-year increase of 19%, marking the third consecutive quarter of 19% growth, but slightly below the consensus expectation of $28.814 billion from Bloomberg Analysts.

E-Marketer Analyst Sky Canaves stated: 'AWS's growth has not accelerated as expected but has maintained the growth level of the third quarter, indicating that Amazon is facing capacity constraints similar to those of Google and Microsoft.'

Amazon stated in a press release that the benefits from the innovations brought by AWS are typically realized by customers (and the Business) only a few months later, but these innovations are important driving factors in the current emerging technology environment, and there is excitement about the products that customers will build based on these innovations.

Additionally, AWS's operating profit margin for this quarter was 36.9%, slightly down from the historical high of 38.1% in the previous quarter. Market analysts believe that part of the reason is that the benefit period from extended depreciation has essentially passed, along with the impact of increased investment in AI. However, the market had already anticipated the decline in profit margins, with the actual performance exceeding the expected profit margin of 35.1%. The actual operating profit was approximately $10.6 billion, higher than the expected $10.1 billion. But with the continued rapid increase in Capex investment, it needs to be monitored whether AWS's profit margin will continue to decline.

• Advertising business.

In the fourth quarter, revenue from the advertising business increased by 18% year-on-year to 17.288 billion yuan, slightly below analyst expectations of 17.342 billion dollars. As another area of high concern for analysts, the performance of the high-margin advertising business clearly fell short of market expectations. Although Amazon's CEO stated that this business's annualized revenue has reached 69 billion dollars, doubling from four years ago, and announced the introduction of new streaming video ads as a new revenue source, the current business is still in its early development stage, and the prospects remain unclear.

What else was mentioned during the earnings call?

• About the $100 billion expenditure for 2025! AI is an unprecedented business opportunity.

Amazon's capital expenditure in the fourth quarter was $26.3 billion. The CEO stated that most of the capital expenditure will be used for AWS and AI fields, as well as technology infrastructure supporting North America and international operations. The way AWS operates and the cycle of cash flow means that the faster the growth, the higher the capital expenditure; thus, there is a need to procure datacenters, Hardware, chips, and networking equipment in advance.

In such an unprecedented business opportunity as AI, increasing AWS's capital expenditure will be a quite good signal for Amazon's medium to long-term development.

In addition, CEO Jassy stated that AWS growth is affected by supply chain constraints, which are expected to gradually ease in the second half of 2025, and the company's latest Trainium chip shipments will truly arrive in the coming months.

• Reasons for the low performance guidance in the first quarter.

Regarding the performance guidance for the next quarter, Amazon's CFO stated that the expected revenue range for the first quarter is $151 billion to $155.5 billion, with the midpoint significantly lower than the market expectation of $158.8 billion; the expected operating profit for the first quarter is $14 billion to $-18 billion, also below the analyst expectation of $18.24 billion. Both the upper limits of revenue and profit guidance are lower than market expectations, which is clearly interpreted by the market as weak growth.

Additionally, Amazon stated in a press release that the low performance guidance for the first quarter is due to the adverse effects of exchange rate fluctuations and the net sales increase from the extra day in 2024 as a leap year.

The guidance is expected to be affected by the exchange rates, resulting in a decrease of about 2.1 billion USD (150 basis points). Additionally, it is noteworthy that in the first quarter of 2024, due to the leap year effect, net sales increased by about 1.5 billion USD, which is expected to have a 120 basis point negative impact on this quarter.

At the same time, in the fourth quarter of 2024, adjustments to the useful life of certain fixed assets will also impact the profit performance in the first quarter of the Earnings Reports. The company decided to reduce the lifespan of some servers and network equipment from 6 years to 5 years starting in January 2025, and this is expected to reduce operating profit for the 2025 fiscal year by approximately 0.7 billion USD.

The company has also retired a portion of servers and network equipment ahead of schedule, resulting in approximately 0.92 billion USD of accelerated depreciation and related expenses recorded in the fourth quarter of 2024. This is expected to reduce operating profit for the 2025 fiscal year by approximately 0.6 billion USD; however, on a positive note, the company extended the useful life of the Datacenter from 10 years to 13 years, which will increase operating profit for the 2025 fiscal year by approximately 0.9 billion USD.

• CEO: Impressed with DeepSeek, the decrease in inference costs is a good thing.

In addition, at the earnings report meeting, Amazon's CEO particularly expressed deep admiration for the achievements made by DeepSeek, considering its innovations in reinforcement training and inference optimization to be extremely valuable for learning. He stated, "We are especially focused on DeepSeek's innovations in training techniques, such as breakthroughs in the sequence of reinforcement learning, achieving reinforcement learning in advance without human intervention."

The CEO also mentioned, "The inference optimization work carried out by DeepSeek is very noteworthy. In fact, Amazon is also conducting similar research. At the same time, DeepSeek's technology is expected to significantly reduce inference costs, which will have a positive impact on customers and Amazon's business. Currently, Amazon is rapidly integrating DeepSeek's technology into Amazon Bedrock and SageMaker (Amazon's Cloud Computing machine learning platform). Some customers have already begun testing the technology."

How does Wall Street view this?

Overall, market analysts believe that Amazon's fundamentals for the fourth quarter of 2024 are in line with expectations, but capital markets generally have anticipated uncertainties and potential risks in advance.

However, Amazon expects that its Q1 2025 revenue may experience a slowdown due to the strong dollar, while the majority of Amazon's revenue comes from E-Commerce (although this business's profits are significantly lower than its Cloud Computing business). Trump's tariff policy includes the cancellation of the "small exemption," which has affected Amazon's E-Commerce business to some extent, especially since the Chinese market occupies a relatively important position in its E-Commerce operations.

In addition, after the emergence of DeepSeek, investors began to worry whether the high capital investment in AI could yield returns that justify such high investments, and whether Amazon's capital expenditure of up to hundreds of billions in 2025 could generate sufficiently valuable benefits.

According to analysts at Seeking Alpha, for a company as large as Amazon with revenues in the hundreds of billions, a 10% revenue growth in the fourth quarter is quite impressive; however, growth in various segments is not balanced, and AWS's cloud computing revenue proportion is relatively low, with growth slower than market expectations. Currently, the management expects a first-quarter operating profit of $16 billion, which is only about a 6% increase over the first quarter of 2024, making it relatively expensive in terms of Amazon's current valuation.

However, analysts at Pivotal Research Group have expressed a certain level of confidence in AWS's cloud computing investments, stating, "2025 will be a big investment year for AWS, and its returns are likely to be realized in 2026 and beyond. Additionally, the low initial operating profit margin of AI will prolong the investment return rate. It is expected that by the second half of 2025, this massive capital expenditure combined with the rapid application of AI will significantly accelerate income in the cloud computing business."

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