Amazon.com (AMZN -1.65%) stock surged 13.5% on Friday, following the e-commerce giant's release of its fourth-quarter and full-year 2021 results on the prior afternoon.
Investors were no doubt pleased that the quarter's operating income came in "higher than the company's guidance, along with earnings that crushed the Wall Street consensus estimate," as I wrote in my earnings article.
In the quarter, Amazon's revenue grew 9% year over year to $137.4 billion. That result was in line with Wall Street's expectation and near the high end of the company's guidance range. Net income soared 99% to $14.3 billion, or $27.75 per share, sailing by the $3.58 per share consensus estimate. However, that big beat was due to a pre-tax gain of $11.8 billion from the company's stock investment in electric-vehicle maker Rivian Automotive, which held its initial public offering (IPO) in November 2021.
Earnings releases tell only part of the story. Here are two key things management shared on the Q4 earnings call that you should know.
Image source: Amazon.
Advertising revenue is now being broken out
From CFO Brian Olsavsky's remarks:
[W]e are now separating advertising services revenue from other revenue as part of our revenue disclosures by groups of similar products and services.
This change means that investors will now know the amount of digital advertising revenue Amazon generates in each quarter. Before the just-reported quarter, the company included advertising in its "other revenue" category. During prior earnings calls, Olsavsky would just say that other revenue consisted "primarily" or "principally" (or use similar words) of advertising revenue.
In the fourth quarter of 2021, advertising revenue increased 32% year over year (33% in constant currency) to $9.7 billion. That's 7.1% of Amazon's total revenue in the quarter.
The advertising business is performing better than the 33% growth figure suggests. That's because the year-ago period (Q4 2020) benefited from the company's annual Prime Day event being held in that quarter, whereas in 2021, this event took place in the second quarter.
Amazon doesn't disclose the profitability of its advertising business, but there's no doubt it's much more profitable than the company's overall business. In other words, while advertising revenue accounted for 7.1% of total fourth-quarter revenue, it's safe to say that it was a higher percentage of total operating income.
For context, digital-advertising behemoth Meta Platforms (META -10.56%), which is Facebook's parent, generated $32.6 billion in advertising revenue in the fourth quarter of 2021. This figure grew just 20% from the year-ago period and accounted for 97% of the company's total revenue. (Yep, that's a lot of eggs in one basket.)
It's impressive that Amazon's advertising business is only about 3.4 times smaller than Meta Platforms' advertising business. If it keeps growing significantly faster than Meta's business, this gap will continue to close.
How Amazon mitigated the impact of global supply chain bottlenecks
From Olsavsky's remarks:
[W]e did a lot to combat the supply chain issues we ... anticipated in Q4. ... We worked with vendors to secure inventory early, so -- in some cases, paid early, which had a working capital impact. We also worked very hard to open up existing channels of input into the country, whether it was port capacity or vessel capacity.
As many investors know, pandemic-driven global supply chain bottlenecks have been plaguing retailers and other companies that import product.
While Amazon isn't immune to these issues, its size and deep pockets put it in a much better position to manage these supply chain issues. As Olsavsky said, the company bought inventory earlier than usual. Not all companies would be able to afford to stock up on product in advance to the degree that a company like Amazon can do.
On that note, Amazon generated cash of $46.3 billion running its operations in 2021. It ended the year with cash and cash equivalents of $36.5 billion.
In what's good news for investors, Olsavsky said the company currently isn't "totally passed" supply chain issues, but "we don't expect [them] to be a big issue in Q1."
