What happened
Amazon.com (AMZN 1.38%) is an e-commerce giant with a $1.6 trillion market capitalization, but today its stock is shooting higher like some penny stock that just won its first buy rating -- up a solid 12% as of 10:30 a.m. ET.
Last night, Amazon reported market-thumping earnings results. While Q4 sales fell just a bit short of analyst forecasts at $137.4 billion, Amazon beat earnings expectations with a stick, reporting a $27.75-per-share profit that was nearly double the $14.09 per share the company earned in last year's Q4.
Image source: Getty Images.
So what
Roughly $11.8 billion of Amazon's profits for the quarter came from a surprising source: Its early investment in Rivian Automotive (RIVN +2.09%). As Rivian's stock price soared late last year, so too did the value of Amazon's stake in the electric truck company.
Beneath the company's headline profit, however, not all was well with Amazon.
Although Q4 sales grew 9% year over year, Amazon reported a 49% drop in operating profits for the quarter and a 27% reduction in operating cash flow. For the year, sales increased 22%, but operating profits grew only 9% -- and operating cash flow was down 30%.
True, net income for the year was up 57% to $33.4 billion -- but mainly because of that big increase in the value of Rivian stock in Q4. (And with Rivian stock having lost 42.5% of its value so far in 2022, there's the potential for Rivian to become a liability to Amazon's net profits).
Now what
Perhaps these reductions in non-Rivian-related profits are part of the reason Amazon has announced that it is raising the annual fee on its Prime delivery-and-streaming service to $139 -- a 17% hike over the last increased price. The fee hike on Prime -- Amazon's first increase in the cost of the service since 2018 -- will go into effect for new Prime members signing up Feb. 18, 2022 and later. Existing Prime customers will see their cost go up on their first renewal date that follows March 25, 2022.
Thus it's unlikely that the higher cost of Prime will contribute much to Amazon's Q1 2022 earnings. Management noted that it's expecting to see sales up 3% to 8% year over year in Q1 2022 -- $112 billion to $117 billion in revenue. Without support from higher Prime prices, operating income will remain depressed -- $3 billion to $6 billion, says the company, or anywhere from one-third to two-thirds of the $8.9 billion in operating profit the company earned in Q1 2021.
Long story short: Yes, Amazon's share price exploded higher on Friday. Enjoy it while it lasts.
