Amazon’s (NASDAQ:AMZN) fourth-quarter results show that the company’s profitability is exploding. Moreover, the firm is well-positioned to get big, future boosts from selling AI tools and increased revenue from its ad offerings.
Among the other future, positive catalysts for AMZN stock are its internet service venture and its efforts in the healthcare space. Meanwhile, the Street appears to be quite enamored with the conglomerate and its shares. Given all of these points, I continue to recommend that investors buy the shares.
1. Exploding Overall Profitability and Two Rapidly Growing Ventures
Spurred by the large cost-cutting initiatives that CEO Andy Jassy has enacted and the continued strength of Amazon’s cloud business, AWS, the firm’s profits are soaring. In Q4, its operating income jumped $10.5 billion versus the same period a year earlier to a record $13.2 billion. And for all of 2023, AMZN’s free cash flow, “adjusted for equipment finance leases” climbed $48.3 billion over 2022 to $35.5 billion.
Meanwhile, AWS’ AI ventures are clearly gaining a great deal of momentum. Among the major companies using its AI chips are Snap (NYSE:SNAP), Airbnb (NASDAQ:ABNB) and the very successful AI startup Anthropic.
Even more importantly, “many 1,000s of customers” are using the firm’s Bedrock system, Jassy stated. Bedrock integrates companies’ data with a third-party AI offering and tools provided by AWS. The CEO suggested that Bedrock, which has just been on the market for “a few months,” can grow tremendously going forward.
Also noteworthy is that the company’s advertising revenue jumped 26% year-over-year last quarter, excluding currency fluctuations. And Amazon recently began showing ads on its Prime Video service, a move that, according to Morgan Stanley, will lift its top line by $3.3 billion this year and $5.2 billion next year. Since ads typically carry very high margins, most of the revenue should flow to the firm’s bottom line.
2. Future Potential, Positive Catalysts
Amazon is developing a satellite broadband internet service called Project Kuiper. In Q4, the firm “launched two end-to-end prototype satellites into space and successfully validated all key systems and subsystems,” Jassy noted. Over the long term, this project can not only provide broadband internet service to the 400 million to 500 million people who lack it, but compete with current broadband internet service providers.
And on the healthcare front, Jassy encouragingly reported that is Amazon Pharmacy unit is “growing really quickly.” Also noteworthy is that the company’s offer to allow Prime members to obtain one prescription for $9 per month or $99 per year “saw a very good take-up,” according to the CEO. I continue to believe that, over the longer term, AMZN can be a tremendous disruptor of the healthcare space in general and the pharmaceutical retail space in particular.
3. The Street Is Enamored With AMZN Stock
Investment bank Roth MKM stated that AWS had reached a positive turning point last quarter, while the company’s retail business remained strong. The bank is also pleased with the increases in its operating margins. It maintained a “buy” rating on the shares and raised its price target on the name to $205 from $180.
Also very bullish was Canadian bank RBC Capital which stated that the increases of Amazon’s cash generation had “only just begun.” The firm hiked its price target on AMZN stock to $215 from $180 and maintained its “outperform” rating on the shares.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
