Amazon has reported strong fourth-quarter revenue that surpassed expectations, driven by the success of its cloud and ecommerce businesses. The innovative use of generative AI in these areas has contributed to the company’s robust growth, leading to an 8% increase in Amazon shares during after-hours trading. Despite a challenging global economy, Amazon has managed to maintain stable growth, thanks in part to its high-spending business customers. However, the company’s position as the world’s largest cloud provider is now being threatened by Microsoft.

Andy Jassy, CEO of Amazon Web Services (AWS), emphasized the unit’s dedication to customer satisfaction and the integration of generative AI into its service offerings. These new features are beginning to yield positive results, although the revenue generated by generative AI is still relatively modest. Jassy expects it to drive billions of dollars in revenue in the coming years and believes that almost all of Amazon’s consumer businesses will either have or already have generative AI offerings.

In line with analysts’ expectations, AWS posted revenue of $24.2 billion in the fourth quarter. To counter Microsoft’s $10 billion investment in ChatGPT parent company OpenAI, Amazon plans to allocate up to $4 billion to acquire Anthropic, a chatbot-maker. Furthermore, the company intends to increase its capital expenses this year to support the growth of AWS, particularly through investments in generative AI and large language models. While AWS achieved an operating margin of nearly 30% in the fourth quarter, Microsoft’s Intelligent Cloud business achieved a margin of 48.2%, and Google Cloud had a margin of 9.4%.

Both Microsoft and Alphabet have recently reported significant revenue gains in their cloud businesses, driven by customer interest in testing new AI features and building their own AI services. However, the costs associated with developing these advanced features have raised investor concerns, resulting in share price declines. As a result, analysts are closely monitoring AWS to see if it can maintain its position against its rivals.

Despite job cuts in various divisions, Amazon’s shares have continued to rise, increasing by over 6% so far this year and 41% in the past 12 months. The company’s stock performance has had a positive impact on the S&P 500. In 2023, Amazon’s stock surged by 81%, along with other major tech giants. The company has been focused on optimizing its operations by building fulfillment centers closer to customers, enabling faster and more cost-effective deliveries. During last year’s Black Friday and Cyber Monday events, customers worldwide purchased over 1 billion items from Amazon. Additionally, Amazon launched Buy With Prime, a service that offers Prime subscribers one- and two-day shipping from non-Amazon.com merchants.

Investors are anticipating increased ad revenue from Amazon in the first quarter, following the introduction of ads on the Prime Video streaming service. While no specific details were provided, Brian Olsavsky, Amazon’s Chief Financial Officer, expects the Prime Video ads business to be successful. Prime subscribers have the option to pay an additional $3 per month to opt out of ads. The advertising services segment of Amazon has been gaining momentum, indicating that the integration of digital ads could significantly enhance marketplace profitability.

Overall, in the fourth quarter, Amazon’s ad revenue increased by 27% to $14.65 billion, in line with estimates. The company’s fourth-quarter sales also rose by 14% to $170 billion, surpassing analysts’ expectations. Its adjusted profit per share was $1, exceeding the average estimate of 80 cents per share. Looking ahead, Amazon forecasts revenue for the current quarter to be between $138 billion and $143.5 billion, slightly lower than analysts’ expectations of $142.13 billion.

While European regulators have recently prevented Amazon’s acquisition of iRobot, the maker of the Roomba vacuum cleaner, the company’s overall performance and growth in its cloud and ecommerce businesses demonstrate its strong position in the market.

Useful links:
1. CNBC – Amazon Q4 2021 Earnings Report
2. The New York Times – Amazon’s Strong Q4 2021 Earnings