Amazon released its fourth-quarter financial report on February 3, a one-sentence summary: revenue is within expectations, but the profit release is much more than expected, and the US stock market also rose by 14% after hours.
The key points of the financial report are as follows:
The company's total revenue for the quarter was $137.4 billion, which was basically in line with market expectations of $137.9 billion. Although the growth rate continues to decline to 9%, considering the consumption marginal return line and last year's high base, this seemingly extremely low growth rate is already within expectations, and the performance is decent.
The relative performance of the retail segments also continued the previous trend: 1P proprietary business grew the slowest (contracted 1%), but 3P seller services (commissions and logistics) were relatively excellent, and advertising business was even better (up 11% and 31%). Subscription services (Prime and online streaming) also performed well (up 15%). Therefore, although the company's total revenue scale is not growing rapidly, the proportion of service revenue with high profit margins continues to increase, and the profit release prospects are broad under the optimization of the revenue structure.
The AWS business is the return of kings: revenue growth rose to 40% in the quarter, accelerating for four consecutive quarters in 21 years. In addition, although the growth rate of Microsoft Azure and Google Cloud is relatively higher, it seems to be menacing. But given the larger revenue base of the company's AWS, the company's lead over its competitors is widening, not narrowing, in terms of the absolute value of cloud services revenue. At the same time, AWS's profit margin reached 29.8%, exceeding the expected 29.4%, and its ability to make money remained strong.
In terms of profit, operating profit for the quarter was $3.46 billion, with a margin of 2.5% far exceeding the guidance ceiling of 0-3 billion and market expectations. The reason for this is that in addition to the strong AWS cloud services, the company's retail business also lost less than expected. From a cost and expense perspective, the cost ratio for the quarter was only 60.3%, well below the levels of the same period in 20 and 19, which was the main reason for the exceeding expectations. However, the three fees are affected by inflation, and its deterioration is also expected.
The company's capital expenditures for the quarter remained $16.5 billion, well above all-decade investments of 19 years. Huge capital expenditure is also one of the reasons why the company's profit release is not high. If depreciation and anti-epidemic expenses are added, the profit in this quarter is not weaker than before the epidemic.
Business Outlook:
Looking forward to the first quarter of 22 years, the company's guidance is basically in line with the judgment of Dolphin Jun,
In terms of operating income, the revenue of the company's guidance 1Q increased by 3%-8% year-on-year, which continued to decrease from the 9% growth rate of the current quarter, which was lower than the market's expectations, which reflected the concerns about the potential economic slowdown and the decline in residents' income and consumption power after the US water harvest.
Guided operating profit of $3-6 billion, median margin of 3.9% was a significant improvement from the quarter. Although the guidance is slightly lower than the market's expectation of 6.23 billion, but referring to the actual profit of this quarter, the upper limit of the guideline is greatly exceeded, and Amazon's profit release can be adjusted by its own investment rhythm, and it is not difficult to exceed expectations again.
Longbridge Dolphin View:
The verification of this financial report also strengthens the recommendation logic of Longbridge Dolphin Jun to Amazon, from a positive point of view: in the long run, the company's revenue structure will gradually be optimized, from hard-working retail to high-margin service income. In the medium term, the company's competitive landscape in online retail is excellent, and this round of investment cycles that suppress profits will turn into profit release after returning to economies of scale. In the short term, the company can also divert cost pressures by increasing freight and storage fees, ensuring the profitability of 1Q22.
The bearish is here: inflationary pressures in the United States are likely to be real and persistent, so the company's fee pressure at least 1H22 is still not low. The beta risk that us interest rate hikes and water collections may lead to economic downturns and reduced consumption is not "empty" and has to be prevented. But for Amazon, any one decline could be a good long-term opportunity.
The following is a detailed interpretation of the financial report:
First, a brief understanding of Amazon
From the perspective of revenue structure, Amazon's business is mainly divided into two categories: retail-related business and cloud-related business. Among them, the retail category can be subdivided into online self-operated, online 3P seller services (commissions and fulfillment fees), online advertising, membership and subscription services, and offline self-operated.
In terms of revenue structure, Amazon's self-operated retail business still accounts for more than half of the share, but the proportion is gradually declining. But from an operating profit perspective, the company's AWS cloud services business contributes the vast majority of the company's profits with a revenue share of about 15%.
Therefore, although Amazon still focuses on retail business, as the proportion of high-profit revenue such as cloud services, advertising, and merchant platform services gradually increases, the essence of the company has changed from a "retailer" to a "technology company" that provides online services.
Source: Longbridge Dolphin Research
Second, the revenue of the retail business is decent
In the fourth quarter, the company's total revenue was $137.4 billion, and the basic compound market was expected to be 137.9 billion, an increase of 9% year-on-year. Overall, the company's revenue growth is still decelerating, but considering the high base caused by Amazon's previous promotion Prime Day (similar to the domestic double eleven) that was usually held in July in 20 years, and the environment of the consumption marginal return line. The decline in revenue growth is already expected, and the performance of the quarterly decline in the upper half of the 130-140 billion guidance can be considered decent.
Among them, the most cornerstone retail sector is as follows:
Self-operated (1P) retail revenue of US$66.1 billion, a slight decrease of about 1% year-on-year, and the largest business (but not high profit margins) grew the lowest;
Third-party seller (3P) services business (mainly commission and logistics services) revenue increased by 11% year-on-year to US$30.3 billion. As a service-oriented business that relies on retail but has higher profit margins, the growth rate of 3P is still ahead of the self-operated business, but the growth rate of 3P business is also declining due to the slow growth of the overall retail;
Advertising business remains outstanding: Other advertising-focused businesses generated revenue of $10.4 billion in the quarter, up about 31% year-over-year, and while decelerating from their own growth rates, they have outperformed Amazon's retail-related businesses. Due to the high gross margin of the advertising business, this business may be one of the main engines of the company's future growth.
Subscription services, led by Amazon Prime members, generated revenue of $8.1 billion in the quarter, up 15 percent year-over-year and the highest growth rate among online retail-related businesses. Prime membership is one of the most successful membership systems in the world, and its still good growth shows that Amazon's core loyal user base continues to grow, which will be the guarantee of the company's future retail business. In addition to Prime subscriptions, Dolphin Jun believes that the online streaming media, online games and other businesses vigorously promoted by the company in recent quarters may also have achieved good performance, helping to promote the 15% growth rate of subscription services. Although the competitive landscape of the online streaming media business is not as good as its own online retail business, as an Internet giant with a large number of loyal users, the company is still in the early stage of this business or has a good growth.
The physical store business generated revenue of $4.7 billion in the quarter, up 17% year-on-year, and the year-on-year growth rate increased for three consecutive quarters, which also verified the trend of consumption from online marginal to offline.
Data source: company financial report, Longbridge Dolphin Investment Research
III. AWS Business "The Return of the King"
As the company's truly "profitable" business, AWS Cloud Services generated revenue of $17.8 billion in the quarter, up 40% year-on-year, and revenue growth continued to increase for four consecutive quarters in 2021. Horizontally, although the revenue growth rate of "followers" such as Microsoft Azure and Google Cloud is higher, considering that Amazon's AWS volume far exceeds its competitors, Amazon is still far ahead of its competitors from the perspective of net revenue increase in cloud services. Therefore, from the perspective of absolute revenue, the gap between Amazon and its competitors is still widening rather than narrowing.
In addition, in this quarter's financial report, Amazon announced that it has signed a new cloud service agreement with Nasdaq Exchange, Goldman Sachs, AIG and other leading financial companies and Meta, although the company does not disclose the amount of new orders, but future growth should also be guaranteed.
Fourth, the release of profits exceeded expectations
The company's overall operating profit in the fourth quarter was $3.46 billion, far exceeding the company's guidance of 0-3 billion cap and market expectations. Since the company's revenue is only within expectations, Longbridge Dolphin Jun believes that the reason why the profit margin exceeded expectations is that the improvement of the revenue structure and the deterioration of expenses are not as bad as expected. In addition, due to the low absolute amount of profits, a slight improvement in cost and expense ratio is enough to break market expectations.
From a cost perspective:
Operating costs accounted for 60.3% in the quarter, although significantly larger than 3Q, but considering the impact of 4Q holiday shopping season promotions, compared with the cost rates of 63.1% and 61.7% in 2019 and 4Q in 2019, the gross profit margin in this quarter is far better than expected.
However, due to the impact of inflation in the United States, rising labor costs and the company's own pace of investment, the company's three-fee expenditure is expected to worsen. Considering the seasonal impact of the 4Q revenue peak, we have a comprehensive deterioration in performance, technology investment, and market expense ratio compared to the same period in 20 years.
Fifth, the profit of the segment
By business segment, the profit release in the quarter exceeded expectations, consisting of a lower-than-expected loss in the retail business (saving money) and a still strong AWS profit:
The North American retail business lost $210 million in operating for the quarter, beating market expectations for breakeven.
The international retail business lost $1.63 billion in the quarter, which continued to expand but actually fell short of market expectations of a loss of more than $2 billion
The profit release of the AWS business is still bright, with an operating profit of 5.29 billion yuan in the quarter and an operating margin of 29.8%, fluctuating slightly at a high level.
Sixth, the family is big and the investment is willful
Although the company's overall revenue growth rate is only in the single digits, the company's investment in logistics and machine room equipment remains aggressive. Fixed asset investment (net value) reached $16.5 billion in the quarter, and the scale continued to "break the sky", and the single-quarter investment even far exceeded the expenditure of the whole year of 19 years.
Therefore, the factors that continue to suppress the release of corporate profits are not only the slowdown in retail revenues and the increase in expenses caused by high inflation, but also the capital expenditures that the company feels independently are also guided by the reasons. Referring to the chart below, after adding back depreciation and anti-epidemic expenses, the company's profitability in this quarter is not weak compared to before the epidemic.
7. Outlook
Looking forward to the results of the first quarter of 2022, the company's guidance is basically consistent with the judgment of Longbridge Dolphin Jun:
1. In terms of operating income, the revenue growth of the company's guidance 1Q was 3%-8% year-on-year, which continued to decrease from the growth rate of 9% in the current quarter, which reflects the concerns about the decline in potential economic growth and the decline in residents' income and consumption power after the US water harvest.
2. The company's guidance operating profit was $3-6 billion, and the median margin was 3.9% Which was a significant improvement from the quarter. In addition, although the guidance is slightly lower than the market's expectation of 6.23 billion, the actual profit of the reference this quarter is also much beyond the upper limit of the guideline, and Amazon's profit release can be invested by its own rhythm conditions, the controllable space is large, and it is not difficult to exceed expectations again.
As evidence of the above judgment, inflation in the United States continued to climb by December 2021 (PPI fell slightly), and the possibility of corporate fees continuing to rise in Q1 under inflation is not low. But the company has also taken steps to shift the pressure on fees: Late last year, Amazon announced that it would increase package shipping rates by 2%-7.5% from January 2022, and again in January 2022, it announced that it would increase storage fees by 10% for the non-busy season (January-September) from February 2022.
With this move, we believe the company has a lot of room to improve its profitability in Q1. But the move also proves that the inflationary pressure in the United States is real and "huge", and even giants like Amazon are difficult to digest on their own. But the fees of the transfer can also damage the seller's profits, or push the seller to raise the price of the goods, creating a vicious circle of inflation.
Data source: Wind, Longbridge Dolphin Research
Data source: the company, Longbridge Dolphin Research
As a leading indicator of the US economy, the number of new jobs added in January was -300,000, the worst monthly performance outside of the 2008 crisis and April 2020. Combined with Dolphin Jun's previous analysis, in the United States, the recovery of production and employment in the past 21 years has not been excellent, while consumption has been very strong. Dolphin Jun believes that the main reason may lie in the government's water release and subsidies, but under the continuous inflationary pressure, the United States may be forced to take tough water collection measures, in this case, the downward pressure on the US macro economy and consumer spending can not be ignored.
Historical Article Back:
December 03, 2021 "It's all not making money, why is Amazon more popular than Ali?" 》
Earnings season
The October 30, 2021 call "Amazon's underperformance, but management seems confident?" 》
October 29, 2021 third quarterly report review "revenue stall, profit plummeted, Amazon surged "squat""
The July 30, 2021 call "To make it clear that growth is slowing, Amazon really has to fight!" 》
July 30, 2021 second quarterly report review "Amazon, you are left behind"