Amazon Stock (NASDAQ:AMZN)
One of the largest technology companies in the world, Amazon (NASDAQ:AMZN) operates in a number of markets, with the company’s business model focused on generating income through its North American and international e-commerce segments. In addition, Amazon has a thriving and lucrative cloud computing division. Finally, the business is well-established and expanding in the streaming video industry.
Amazon is a company with strong fundamentals, a top-tier e-commerce platform, a quickly expanding and highly lucrative cloud computing division, and a significant chance for growth in the streaming video sector. In light of these possibilities and the company’s sound fundamentals, I think Amazon stock is still a compelling long-term investment opportunity and should be purchased.
Amazon Q4 2022 Results
Amazon experienced strong revenue growth of 8.6% to $149 billion in the fourth quarter of FYE 2022, powered by its North America business and AWS, which both experienced 12% and 20% year-over-year growth rates, respectively. The International segment’s 8% revenue reduction moderately offset the sales rise. Foreign exchange fluctuations were a major factor in the collapse of the international segment. Foreign exchange changes caused net sales to drop by $15.5 billion annually, which caused problems for AMZN throughout each of the three months of 2022.
Operating expenses increased by 9% during the quarter, mostly as a result of $2.7 billion in costs for staff severance, impairment charges, operating leases, and revisions in projections for self-insurance liabilities. Additionally, Amazon experienced a $5 billion surge in technology and content expenses (R&D). For comparison, just in the fourth quarter, Amazon invested $20.8 billion, or 14% of total sales, in technology and content. To give you an idea of how much this cost is, consider that it is about $3 billion more than what its competitors Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) have invested in R&D altogether.
Operating income fell to $2.7 billion from $3.5 billion during the same period last year as a result of increasing expenses.
It should be noted that Amazon’s operating income would have been about $5.4 billion in the fourth quarter without employee severance payments, impairment charges, etc.
Additionally, Amazon suffered a $2.3 billion value loss on its stake in Rivian Automotive (NASDAQ:RIVN). Although this is not a true cash outflow, it nonetheless affects the balance sheet of the business. Because of this, Amazon’s fourth-quarter net income was $278 million as opposed to $14.3 billion in the same period last year.
Despite reporting a significantly lower net profit than the prior year, Amazon was nevertheless able to produce a sizable $29.2 billion in operating cash flow.
As a result, Amazon was able to produce $12.6 billion in free cash flow during the time period. Comparing this to the free cash flow of $3.2 billion in the fourth quarter of 2021, there has been a nice boost.
In comparison to the same quarter the previous year, AWS’s revenue increased by 20% to $21.3 billion, continuing its trend of rapid expansion. The fact that AWS revenues have nearly doubled in only two years is evidence of how crucial this industry is to Amazon’s expansion. Operating income was $5.2 billion, essentially unchanged from the same time last year.
With the introduction of AWS in additional countries, including Spain and Switzerland as well as a second location in India, management continues to make wise investments to position AWS for success. We may anticipate management’s continued global infrastructure expansion of AWS. It should be mentioned that AWS will have 96 availability zones spread over 30 geographical areas by the end of 2022. The business also disclosed plans to introduce 15 additional availability zones and five additional AWS regions.
Last but not least, AWS revenue in 2022 climbed by 29% year over year to $80.1 billion. When compared to the operating income of $18.5 billion in 2021, AWS’s operating income experienced a good boost to $22.8 billion.
Management predicted revenues to be between $121 billion and $126 billion on the investor call, representing growth rates between 4% and 8% compared to the first quarter of 2022. In terms of operational income, management anticipates it to be in the range of $0 and $4 billion, which would be comparable to the $3.7 billion operating income recorded during the same time last year.
Regarding AWS, it appears that cost reduction is still a top focus for many businesses given the persistence of this slowdown in spending. AWS experienced a year-over-year revenue increase in the mid-teens during the first month of the year, according to management. This would imply that by the first quarter of 2023, AWS revenues may reach $20 billion.
According to Amazon CEO Andrew Jassy, management is still very passionate about the company that AMZN is establishing. He added that AMZN’s compound annual growth rate from 2019 to 2021 in the UK was over 30%, while it was 26% and 21% in Germany and Japan, respectively. It should be noted that foreign exchange fluctuations have had a significant impact on the International segment. In the upcoming quarters, the International sector may post significantly stronger performance if AMZN management is successful in containing these oscillations.
With the firm investing almost $7 billion in Amazon Originals, live sports, and authorized third-party video content, Prime Video is still expanding rapidly.
This is an increase of $2 billion over the $5 billion invested in 2021. These expenditures are obviously paying off, as “The Rings of Power” garnered 100 million viewers and was the most-watched Amazon original series globally. The second season of this program, which Amazon has already confirmed, is certain to keep attracting Prime Video subscribers.
Because it competes with Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS) for market share in the streaming video business, Prime Video shouldn’t be disregarded. For reference, it is anticipated that this market would increase to $125 billion by 2025, providing Prime Video plenty of room to develop.
To Sum Up
Amazon experienced mixed results, with its net income coming in at $278 million due to impairment charges, employee severance payments, a decline in the value of investments, etc. However, Amazon also reported a healthy $29.2 billion free cash flow for the time period. This gives reassurance that in a challenging market situation, the organization was still able to make sizable quantities of cash.
Amazon is a business with strong fundamentals, a dominant e-commerce platform, a quickly expanding and highly profitable cloud computing business, and a significant growth opportunity in the market for streaming video services. In the long run, Amazon is well-positioned to maintain its growth trajectory across all of its key markets. As a result, I still think Amazon stock is a buy.
Featured Image: Google Images @ techdad