Shares of Amazon (AMZN +0.53%) were down 4.4% as of 12:18 p.m. ET on Friday, following the e-commerce and cloud computing leader's release of its fourth-quarter 2022 report the prior afternoon.
There were likely two main culprits for investors' displeasure -- earnings that missed Wall Street's consensus estimate and first-quarter 2023 revenue guidance that was lighter than analysts had been expecting.
On the positive side, fourth-quarter revenue came in higher than analysts had been projecting. That said, Wall Street's expectations for Amazon's sales in the holiday quarter had been relatively modest.
Here's an overview of Amazon's fourth-quarter results and its guidance, centered around five key metrics.
NASDAQ: AMZN
Key Data Points
1. Revenue grew by 9%
Amazon's net quarterly sales grew 9% year over year to $149.2 billion, exceeding the $145.4 billion Wall Street had expected. That result also surpassed the company's guidance range of $140 billion to $148 billion. Excluding the headwind from foreign-currency exchange, revenue increased 12% from the year-ago period.
For context, in the third quarter, revenue grew by 15% as reported, and 19% on a constant-currency basis.
| Amazon Segment | Q4 2022 Revenue | Change YOY |
|---|---|---|
| North America | $93.4 billion | 13% |
| International | $34.5 billion | (8%) |
| Amazon Web Services (AWS) | $21.4 billion | 20% |
| Total | $149.2 billion* | 9% |
Data source: Amazon. YOY = year over year. *Segment results don't add up precisely to total due to rounding.
The international segment's underlying performance was notably better than its reported revenue decline of 8% would suggest. On a constant-currency basis, its revenue increased 5% year over year. These numbers show how the strong U.S. dollar (relative to other currencies) is hurting the financial results of U.S. companies that have significant international businesses.
Growth at AWS slowed significantly. In the second and third quarters, the cloud computing unit's revenue jumped by 33% and 27%, respectively. A continued slowdown was widely expected because many businesses are becoming more cautious about their spending due to concerns about the macroeconomic environment.
2. Operating income fell by 23%
Operating income decreased 23% year over year to $2.7 billion. This result was in line with Amazon's guidance range for operating income between $0 and $4 billion.
| Amazon Segment | Q4 2022 Operating Income | Change YOY |
|---|---|---|
| North America | ($0.2 billion) | Flat |
| International | ($2.2 billion) | Loss widened by 38% from $1.6 billion in the year-ago period. |
| Amazon Web Services | $5.2 billion | (2%) |
| Total | $2.7 billion* | (23%) |
Data source: Amazon. *Segment results do not add up precisely to total due to rounding.
Given the tough macro environment, it's not surprising that AWS's operating margin (operating income divided by revenue) continued to trend downward. In Q4, this metric was 24.3%, compared with 29.8% in the prior-year period and 26.3% in 2022's third quarter.
3. EPS dropped by 97.8% -- but that was largely due to the company's stake in Rivian
Fourth-quarter net income was $300 million, or $0.03 per share, down from $14.3 billion, or $1.39 per share, in the year-ago quarter. Wall Street had been expecting earnings of $0.17 per share.
However, the quarter included a pre-tax valuation loss of $2.3 billion included in nonoperating income from Amazon's common stock investment in electric vehicle maker Rivian Automotive, which went public in November 2021. The year-ago quarter, by contrast, had included a pre-tax valuation gain of $11.8 billion from the Rivian stock.
Note: We can't know exactly what Amazon's results for the two periods would have been absent its fluctuating Rivian investment because the valuation changes are pre-tax numbers. Absent the impact of its Rivian holdings, the company's tax bill would have been different.
4. Operating cash flow for the year rose by 1%
In 2022, operating cash flow edged up by 1% to $46.8 billion. Free cash flow was negative $11.6 billion, down from negative $9.1 billion in 2021.
The company ended the year with cash and cash equivalents of $53.9 billion on the books, and long-term debt of $67.2 billion.
Investors should mainly focus on Amazon's operating cash flow. Its free cash flow can vary a lot based on how much money the tech giant is investing in growth initiatives.
5. Revenue is expected to grow by 4% to 8% in Q1 2023
For Q1, management guided for net sales in the range of $121 billion to $126 billion, which would amount to growth of 4% to 8% year over year. This guidance builds in an unfavorable impact of about 2.1 percentage points from changes in foreign exchange rates.
Ahead of the Q4 report, Wall Street had been modeling for first-quarter revenue of $125.1 billion, so the midpoint of that guidance range came up a bit below what analysts had been expecting.
Amazon (which doesn't provide earnings guidance) also said that it expects that Q1 operating income will be between $0 and $4 billion, compared with $3.7 billion in the prior-year period.
Holding its own
Amazon's fourth quarter wasn't a good one, but it also wasn't a bad one, particularly considering the challenging macroeconomic environment, in which many consumers and businesses are reducing their discretionary spending.
The current macroeconomic challenges won't last forever, though. And Amazon still has a long runway for growth in its existing businesses, and will likely continue to enter new markets.
