With a gain 22% in six months and 18% year to date, Amazon (AMZN) has been one of the best-performing stocks in retail and among its Magnificent Seven peers. The shares have risen 74% over the past year, besting the 25% rise in the S&P 500 index.
The e-commerce giant’s growth and efficiency strategies have paid off handsomely, showing further signs that its cost-cutting initiatives are working as profits have significantly improved. Spanning the last four quarters, Amazon has not only delivered an increase of 565 basis points in its EBITDA margin, the company’s net profit margin has increased by 672 basis points. Investors want to know if the company can maintain its strong momentum.
The nation’s second-largest retailer is set to report first quarter fiscal 2024 earnings results after the closing bell Tuesday. In the most recent quarter, Amazon showed signs that its cost-cutting initiatives are working as profits have significantly improved across various segments. Despite Q4 being a seasonally lower-margin quarter, Amazon maintained record levels of profitability in both FCF and EBIT. Just as impressive, the management guided for Q1 operating margins of 8.4% at the high point. In terms of overall execution, the management continues to push all of the right buttons.
All told, Amazon now has slimmer cost profile which will lend to faster earnings growth in the quarters ahead. From a valuation perspective, while Amazon stock is not as cheap as it was six months ago, the shares still looks like a bargain relative to the company’s long-term potential. On Tuesday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term return investment thesis.
In the three months that ended March, the Seattle-based company is expected to earn 83 cents per share on revenue of $142.47 billion. This compares to the year-ago when earnings were 31 cents per share on revenue of $113.91 billion. For the full year, ending in December, earnings are expected to be $4.14 per share, rising 42% year over year, while full year revenue of $641.17 billion would rise 11.6% year over year.
With full-year profits projected to grow at 42%, Amazon cost-cutting initiatives are without a doubt the strongest evidence of significantly improved cost structures across various segments. Some of the recent cost-saving measures include shutting down unprofitable businesses, reducing its global headcount and reprioritizing resources. The effectiveness of these initiatives were evident in the company’s financial results.
In the fourth quarter, Amazon beat on both the top and bottom lines, posting adjusted EPS of $1.00 per share which beat estimates by 20 cents. The bottom line beat was driven by a combination of high-margin advertising revenue and higher unit revenue which helped the company spread its fixed costs across a greater volume of revenue. Q4 revenue of $169.96 billion surpassed Street estimates by $3.7 billion, rising 14% year over year.
During the quarter, the AWS segment revenue increased 13% year over year to $24.2 billion, topping forecasts and accelerating more than 1 percentage points sequentially. Just as impressive, AWS operating margins were 29.6% thanks to advances in AI features which were rolled out to customers during the quarter. CEO Andy Jassy affirmed that the company will continue to prioritize investments in AI, saying “Gen AI is and will continue to be an area of pervasive focus and investment across Amazon.”
All told, from a valuation perspective, Amazon stock should remain a staple in any growth portfolio for the next 12 to 18 months. On Tuesday beyond a top- and bottom line beat, investors will want strong profit guidance to support the long-term return investment thesis.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
