Amazon (NASDAQ: AMZN) surpassed street expectations from its fourth quarter performance, delivering revenue of $187.8 billion and adjusted earnings per share of $1.86 – topping analysts’ projections of $187.3 billion and $1.49, respectively. While Amazon Web Services remained a key growth driver, the company provided a cautious first-quarter forecast that could potentially pressure its stock price in the near term.
AMZN stock, with 57% returns since the beginning of 2024, has outperformed the S&P 500 index, up 28%. The company’s substantial investments in rebuilding its infrastructure over recent years are now yielding results, which is evident from the improvement in operating profits. This has boded well for its stock. But, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
How Did Amazon Fare In Q4?
Amazon’s revenue of $187.8 billion in Q4 reflected a 10% y-o-y growth. Looking at segments, North America saw a 10% rise to $115.6 billion, International sales were up 8% to $43.4 billion, and AWS saw a 19% jump to $28.8 billion. Amazon also saw its operating margin expand by 350 bps y-o-y to 11.3% in Q4, thanks to an uptick in its high-margin AWS business. Higher revenues clubbed with margin expansion resulted in the bottom line of $1.86, up 86% y-o-y.
Amazon’s first-quarter revenue guidance ranges between $151 billion and $155.5 billion, falling short of analysts’ expectations of $158.5 billion. This forecast includes an anticipated negative impact of $2.1 billion from unfavorable foreign exchange movements. Furthermore, the company raised its capital expenditures to $100 billion this year, reflecting its continued investments in AI. Amazon is focused on expanding its infrastructure to keep pace with the surging demand for generative AI services.
What Does This Mean For AMZN Stock?
Although Amazon posted an upbeat Q4, its stock is trading lower in after-hour trading amid a bleak Q1 outlook. Even if we look at a slightly longer period, the increase in AMZN stock over the last four-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500.
In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts, impending tariff wars, and the rise of DeepSeek, could AMZN face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? While we will soon update our model for Amazon, to reflect the latest results, we think its stock has little room for growth. At its current levels of around $230, AMZN is already trading at 3.9x trailing revenues, versus the stock’s average P/S ratio of 3.2x over the last five years. Investors have awarded Amazon a premium to its historical valuation multiple, reflecting the company’s enhanced profitability. In light of Amazon’s recent performance and future outlook, we see limited opportunity for its valuation multiple to expand further. Also, check out our note on What’s Happening With GOOG Stock?
While AMZN stock looks like it has little room for growth, it is helpful to see how Amazon’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates
Read the full article here
