Amazon (NASDAQ:AMZN) stock has risen over 10% in early market trading on Feb. 4. AMZN stock is being propelled by what looked like a great earnings report. But it wasn’t as great as the media made it appear.
The gross numbers sounded great. Net income nearly doubled, to $14.3 billion, $27.75 per share. Net sales were up 9%, to $137.4 billion, 10% if you ignore currency fluctuations.
But most of that profit, $11.8 billion to be exact, was “non-operating.” It was Amazon re-valuing Rivian (NASDAQ:RIVN), the electric car company it owns 20% of, after its IPO. Since the start of 2022, Rivian stock is down over 40%.
Amazon starts the first quarter behind. With that in mind, should you start to worry about AMZN stock now moving forward? Let’s take a closer look.
AMZN Stock: The Good News Is Hidden
The report did hold enough good news for me to stay with the company.
For one thing, the report broke out Amazon’s advertising services revenue for the first time. These are ads placed on search engine results, often for products offered through Amazon, and ads on Amazon channels like IMDB. During the fourth quarter this came to $9.7 billion, nearly twice the figure of a year ago, and up 32% in just one quarter.
Then there’s Amazon Web Services, Amazon’s market-leading cloud service. It posted revenue of $17.78 billion for the quarter, and almost $5.3 billion in net income. Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud, which keeps claiming it’s catching up (but isn’t), continues to lose money.
Time for the Bad News
The bad news came from what I call the Amazon “store;” in other words, its commerce operations. North American operations lost $206 million, after making nearly $3 billion a year ago. International showed a loss of $1.6 billion, after earning $363 million a year ago.
There was worse news on the cash flow front, which Amazon usually highlights. Operating cash flow for the fourth quarter was $22 billion, down sharply from $30 billion in 2020. For the year it came to $46.3 billion, down from $66 billion.
The reason? Amazon was investing ahead of growth again, as it did during the 2010s. It put almost $19 billion into new property and equipment during the quarter, against $14.8 billion last year. For the year such purchases came to $61 billion, against $40 billion a year ago.
The company’s balance of cash and marketable securities stood at $86 billion by the end of the year, nearly unchanged from a year earlier, but the mix was tilted more toward securities.
The Future of Amazon
What should matter most for AMZN stock investors is Amazon’s view of its future. The company is guiding to first quarter sales of $112-117 billion, with operating income of $3-6 billion. That’s sales growth of 3-8%, but $3-6 billion less in operating profit. This includes $1 billion in saved depreciation as the useful life of servers now looks to be longer. Add the expected drop in Rivian’s price and you get a first quarter loss.
There was also no talk about stock buybacks, dividends or a stock split, the kinds of easy financial moves that are helping the other cloud kings keep their stocks up. Former CEO Jeff Bezos rejected such folderol. His successor, Andrew Jassy, is continuing the tradition.
The Bottom Line on AMZN Stock
I have written before that Amazon could make more money if it were split up.
I was wrong. This latest quarterly report proves it.
If Amazon were two or three companies, the negative results at the store would have crashed the stock. The store would have also had to rent its cloud capacity instead of owning it, thus adding to expenses. The continued roll-out of physical stores would be questioned, although I see them as essential if Amazon is going to learn how to merchandise.
If Amazon were two or three companies, analysts would have focused on a slowdown at AWS, and wondered whether Prime Video was profitable. The sum of the parts would be worth nowhere near what Amazon is today. That’s good news for AMZN stock now but could prove very bad when the antitrust police come calling.
On the date of publication, Dana Blankenhorn held long positions in AMZN and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.
