On Friday, shares of Amazon (AMZN 3.43%) jumped 7.9%, following the e-commerce and cloud computing leader's release on the prior afternoon of better-than-expected fourth-quarter 2023 results. The quarter's revenue and earnings both easily exceeded Wall Street's expectations. First-quarter 2024 revenue guidance, however, was a bit lighter than analysts had been projecting.
In the fourth quarter, Amazon's revenue grew 14% year over year to $170 billion, beating the $166.2 billion analyst consensus estimate. Net income was $10.6 billion, or $1 per share, up 3,233% from $0.03 per share in the year-ago quarter. Wall Street was looking for earnings per share (EPS) of $0.80.
Earnings releases tell only part of the story. Below are three key things that management discussed on Amazon's Q4 2023 earnings call that you should know.
1. Prime delivery speeds were the fastest ever in 2023
From CEO Andy Jassy's remarks:
In 2023, Amazon delivered to Prime members at the fastest speeds ever with more than 7 billion items arriving same or next day, including more than 4 billion in the U.S. and more than 2 billion in Europe. In the U.S., this result is the combination of two things. One is the benefit of regionalization, where we rearchitected the network to store items closer to customers. The other is the expansion of same-day facilities.
Jassy provided a statistic that nicely quantifies how much progress Amazon has recently made in speeding up its deliveries in the U.S.: In the fourth quarter of 2023 -- the big holiday quarter -- the company increased the number of items delivered the same day or overnight by more than 65% year over year.
Improvements in delivery speeds lead to increased purchase frequency by Prime members, said CFO Brian Olsavsky. This stems in part from speedier delivery expanding the category of products that consumers will consider buying from Amazon. As Olsavsky added, the availability of same-day and next-day delivery has strengthened demand for everyday essentials, such as health, beauty, and personal care products.
2. The company reduced its "cost-to-serve" on a per-unit basis globally
From Jassy's remarks:
Our regionalization efforts have also brought transportation distances down, which has helped lower our cost to serve. In 2023, for the first time since 2018, we reduced our cost to serve on a per-unit basis globally. In the U.S. alone cost to serve was down by more than $0.45 per unit compared to the prior year.
When Amazon lowers its average cost for its entire process of getting a unit of product into the hands of a customer, its e-commerce business becomes more profitable on an operating basis. Higher operating profits allow the company to invest more money in initiatives to power its growth, including further improving its delivery speeds and increasing product selection.
Amazon will continue to work on lowering its cost to serve. In 2024, its main focus will be on its inbound network and inbound processes, including inventory placement, Jassy said.
3. Amazon Web Services' accelerating revenue growth expected to continue in 2024
From Olsavsky's remarks:
[AWS'] revenue growth ... accelerated to 13.2% in Q4. ... We expect accelerating trends to continue into 2024. We're excited about the resumption of migrations [to the cloud] that companies may have put on hold ... and the interest in our generative AI [artificial intelligence] products.
Amazon's cloud computing business' Q4 2023 revenue growth of 13% year over year represents an acceleration from the prior quarter when this metric rose 12%. While this acceleration was a small one, it's very encouraging, especially when taken together with management's optimism that this acceleration will continue.
Over about the last two years, AWS' quarterly revenue growth has decelerated. As recently as the year-ago quarter (Q4 2022), for instance, its revenue grew 20% year over year. This slowdown -- which has affected the entire cloud industry -- was caused by many businesses cutting back their spending due to concerns about the economy.
The U.S. economic picture has brightened, with inflation coming down substantially and interest rates in the early stages of declining. So, it makes good sense that Amazon's management is projecting sunnier skies ahead for its cloud unit. This is particularly good news because AWS is Amazon's profit driver, so it's critical for the company to be able to invest in growth initiatives. In 2023, for instance, AWS accounted for 16% of Amazon's total revenue and a whopping 67% of its operating profits.
