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Amazon's Q4 2024 Earnings: Stock Down, But is it a Buy?

• 0:00:02 Stock Reaction: Amazon's stock dropped 5% in after-hours trading following the release of its Q4 2024 earnings report, despite strong growth numbers.
• 0:00:28 Q4 Financial Highlights:
  • Net sales increased by 10% to $187.8 billion.
  • North America segment sales up 10% year-over-year.
  • International segment sales up 8% year-over-year.
  • AWS segment sales up 19% year-over-year to $28.8 billion.
  • Operating income increased to $21.2 billion (up about 60-70% year over year).
  • AWS operating income at 10.6 billion (Up 40% year-over-year).
• 0:01:33 Full Year 2024:
  • Net sales were up 11% to $638 billion.
  • AWS segment sales increased by 19% to $107.6 billion. This is the first year AWS has broken $100 billion in revenue.
  • Operating income almost doubled from $37 billion in 2023 to $68.6 billion.
  • Operating cash flow increased by 36% to $116 billion (trailing 12 months).
  • Free cash flow increased to $38.2 billion (trailing 12 months).
• 0:03:07 Q1 2025 Guidance (Potential Cause for Stock Drop): Amazon projects modest growth for Q1 2025, with net sales between $151 billion and $155.5 billion (5-9% growth). Operating income is expected to be between $14 billion and $18 billion (compared to $15.3 billion in Q1 2024).
• 0:04:00 Cash Flow Analysis: Q4 operating cash flow grew by 7% year-over-year to $45.6 billion. Capital expenditures (capex) for Q4 were $27.8 billion, almost double the previous year. Full-year capex was $83 billion.
• 0:05:31 AWS Segment Performance: AWS operating margin is expanding, expenses are not growing in the same proportion to revenue, with the most recent quarter coming in at $28.8 billion
• 0:06:49 Business Segment Growth Rates: Some segments (third-party seller services, advertising, subscription services) are showing decelerating revenue growth, while AWS maintains a strong 19% growth.
• 0:07:56 Cloud Market Comparison: AWS maintains a strong position (19% growth) compared to Google Cloud (30%) and Microsoft Cloud (21%), especially considering its larger size.
• 0:10:07 Stock Valuation: After the drop, Amazon is trading at 20.3 times operating cash flow, below its 10-year average of 27.
• 0:11:40 Discounted Cash Flow (DCF) Analysis: The market is pricing in approximately 10% annual operating cash flow growth for the next five years. The speaker believes Amazon could potentially achieve 12% growth due to AWS margin expansion.
• 0:13:37 Conference Call Highlights:
  • AWS growth may be "lumpy" in the coming years.
  • Amazon is confident in the long-term growth of AWS and AI.
  • Amazon is developing its own chips with better price-performance than Nvidia's.
  • Amazon spent $27 billion on capex in Q4 and that amount will be the quarterly run rate for 2025.
  • Amazon is projecting to spend over $100 billion in capex in 2025, and they will not spend that amount unless it's absolutely certain that there is demand.
  • AI is considered a "once-in-a-lifetime business opportunity."
  • Growth constraints (chip and power supply) may ease in the second half of 2025.
• 0:16:54 Overall Assessment: The speaker views the quarter as "decent," not spectacular. The speaker sees the stock as fairly valued and is holding their current position, but would consider buying more if the price drops further.