The market finished the week strong on Friday, and one of the major catalysts was Amazon (NASDAQ:AMZN), which soared on strong earnings.
The e-commerce giant blew past consensus estimates, buoyed by a huge holiday shopping season. As a result, the company’s stock price was up by about 8% on Friday afternoon to almost $172 per share, making it a top gainer on a day when all three major indexes were trending higher.
Record-breaking holiday shopping season
The 2023 holiday-shopping season was a record-breaker for Amazon, as it propelled the company’s net sales to $170 billion, up 14% from the fourth quarter of 2022. The segment with the biggest growth was international, as sales jumped 17% to $40.2 billion, while North American sales climbed 13% to $105.5 billion in the quarter.
Amazon Web Services (AWS), the cloud-computing business, experienced a 13% spike in net sales in the quarter, rising to $24.2 billion.
Overall, Amazon’s net income rose to $10.6 billion or $1 per share, up from $278 million or 3 cents per share in the fourth quarter of 2022. The numbers were somewhat skewed by a $2.3 billion loss in Rivian stock in the fourth quarter of 2022, compared to a $100 million loss this quarter.
“This Q4 was a record-breaking holiday shopping season and closed out a robust 2023 for Amazon,” said Amazon CEO Andy Jassy. “While we made meaningful revenue, operating income, and free cash flow progress, what we’re most pleased with is the continued invention and customer experience improvements across our businesses. The regionalization of our U.S. fulfillment network led to our fastest-ever delivery speeds for Prime members while also lowering our cost to serve.”
More items were purchased on Amazon this year across the entire holiday season than in any other year. The season was highlighted by huge volumes over the Black Friday and Cyber Monday period, when deals and discounts were aplenty. Consumers bought more than 1 billion items over an 11-day stretch that included those two events, saving almost 70% compared to the same period in 2022. Roughly 500 million of those items came from independent sellers.
Amazon also vastly improved its delivery times, which no doubt contributed to the spike in sales. The number of same-day or overnight deliveries from the company’s Same-Day sites rose 65% year over year in the fourth quarter.
Among other new initiatives in the quarter, Amazon announced a partnership with automaker Hyundai to sell its cars online starting this year. It also added a healthcare option for Amazon Prime members through One Medical.
Analysts are bullish
In their first-quarter guidance, Amazon management said they expect net sales to be between $138 billion and $143.5 billion, which would be 8% to 13% higher than the first quarter of 2023.
Operating income is anticipated to be in a range between $8 billion and $12 billion, up substantially from $4.8 billion in the first quarter a year ago.
Several analysts upgraded Amazon after its blowout quarter, including RBC Capital, which raised its price target from $180 to $215 per share. In general, analysts cited its better-than-expected sales in AWS, its ability to grow market share in e-commerce, and its abundance of free cash flow to fund further growth, among other reasons.
At the end of 2023, Amazon had $36.8 billion in free cash flow, up from an outflow of $11.6 billion at the end of 2022.
With Friday’s gains, Amazon stock is up about 14% year to date. I’m not as bullish as some in the short term given its higher valuation and the potential for an economic slowdown, but long term, there aren’t many better stocks to hold than Amazon, and this past quarter showed why.
