Judging by the market's reaction to Amazon's (AMZN -1.64%) fourth-quarter report, you'd think the e-commerce and cloud computing giant hit it out of the park. In some ways it did. The company's stake in electric vehicle company Rivian delivered a gain of nearly $12 billion; Amazon Web Services (AWS) continues to fire on all cylinders, growing rapidly and producing incredible profits; and an announced price hike for Amazon Prime will bring in billions in additional revenue.

All of this helped push Amazon stock up more than 10% on Friday, a big move for a trillion-dollar company. This post-earnings rally undid some of the damage inflicted by the rout in growth stocks over the past few months, although the stock is still down around 15% from recent highs.

The market focused on the good parts of Amazon's report on Friday, but there were plenty of bad parts that investors shouldn't ignore.

Amazon vans.

Image source: Amazon.

Revenue growth was sluggish

Amazon grew sales by just 9% in the fourth quarter, not exactly an earth-shattering result. The North America retail business, by far the largest segment, matched that overall growth rate. AWS grew at a much faster 40% pace, while the international segment suffered a 1% sales decline.

To be fair, the comparison was a difficult one. Amazon grew sales by 38% in the fourth quarter of 2020, a tough act to follow for sure. Consumers boosted their e-commerce spending early in the pandemic, but that tailwind seems to have vanished. With a ton of competition from traditional retailers like Walmart, Target, and Best Buy, as well as from e-commerce companies like Chewy and Wayfair, sluggish growth for Amazon may be the new normal.

Inflation caused profits to plunge

On top of a growth slowdown for the retail segments, profits plunged. The North America segment posted an operating loss of $206 million, down from a profit of nearly $3 billion in the fourth quarter of 2020, while the international segment swung from a $363 million profit to a $1.63 billion loss.

AWS picked up some of the slack, but overall operating profit still tumbled 50% year over year. The company pointed to more than $4 billion in costs associated with wage increases, higher pricing, lost productivity, and fulfillment network disruptions during its earning call with analysts.

Amazon now has more than 1.6 million employees, not including contractors who power its delivery network. The company is not exactly known for great working conditions in its warehouses, so a competitive labor market could lead to some serious problems with employee retention. That could raise costs further, slow down deliveries, and upset customers.

The Prime price hike will help offset some of these inflationary pressures, and it will provide a test of Amazon's pricing power in an increasingly competitive e-commerce market.

Amazon is back to burning cash

Amazon puts a heavy focus on free cash flow generation. The company produced a whopping $31 billion of free cash flow in 2020, helped by the surge in demand resulting from the pandemic.

The situation has changed. Over the past 12 months, Amazon's free cash flow was negative-$9 billion. Even worse, free cash flow accounting for equipment procured through leases was negative-$14 billion, down from positive-$21 billion one year ago. That's a $35 billion swing.

Part of this can be explained by Amazon's investing more in its businesses. Total capital spending, including finance leases, totaled just about $60 billion in 2021, up from $44 billion in 2020. This ramp-up in spending accounts for less than half of the free cash flow plunge.

The rest is the result of a severe drop in operating cash flow. Operating cash flow was $46 billion last year, down a full $20 billion from 2020.

Guidance was not great

The first quarter of this year won't be any better. Amazon expects to grow revenue by just 3% to 8% year over year. The company sees operating income coming in between $3 billion and $6 billion, down from $8.9 billion in the first quarter of 2021.

The operating income guidance is actually worse than it looks. Amazon boosted the estimated useful life of servers and networking equipment at the start of the year, which will effectively reduce deprecation costs in the first quarter by $1 billion. Even with that $1 billion benefit, Amazon will likely be nowhere near as profitable as last year.

Know what you're getting into

It's important to remember that Amazon is an expensive stock. Based on 2021 net income, excluding the Rivian gain, Amazon trades for around 75 times earnings. The company certainly has some major competitive advantages, but growth is now in the single digits and profits excluding Rivian are plunging.

Of course, you should never underestimate Amazon. But the picture right now just doesn't look great to me.