Amazon Q4 Earnings Breakdown: Should Investors Worry About Slowing Growth?

Amazon (NASDAQ:AMZN) shares fell over 4% Friday morning even though the e-commerce power posted better-than-excepted Q4 earnings and revenue results Thursday. The negative reaction is likely due to subdued first quarter fiscal 2019 guidance, increased spending, growth concerns in India, and the possibility of an overall slowdown.

Quick Overview

Amazon’s holiday quarter sales surged 19.7% to reach $72.38 billion, which topped our Zacks Consensus Estimate of $71.93 billion. This did, however, mark a significant slowdown compared to Q3’s 29% climb, Q2’s 39% surge, Q1’s 43% climb, and Q4 2017’s 38% jump. In fact, the fourth quarter represented Amazon’s smallest top-line expansion since 2015. Meanwhile, total fiscal 2018 revenues jumped 31% to $232.89 billion.

Jeff Bezos’ company has gotten to the point where the law of large numbers simply makes it difficult to post massive year over year growth on a percentage basis—Amazon is poised to pass Apple (NASDAQ:AAPL) in annual revenue this year. With that said, Amazon’s adjusted quarterly earnings soared 61% to $6.04 per share, which surpassed expectations. Plus, AMZN posted its third straight period of record profit and topped $3 billion for the first time. Meanwhile, its operating income skyrocketed over 80% to $3.8 billion.

Details

Moving on, Amazon Web Services has remained the champion of cloud computing for years, thanks in part to a significant head start compared to competitors Microsoft (NYSE:T) , IBM (NYSE:IBM) , Google (NASDAQ:GOOGL) , and Alibaba (NYSE:BABA) . AWS’ quarterly revenues surged 45% to $7.43 billion, which came in above our NFM estimate. Investors should note that this marked the slightest of downturns from the trailing three quarters’ expansion.

On top of that, AMZN’s advertising-driven “Other” revenue segment soared 95% to $3.39 billion. This segment surged 60% in the prior-year quarter and 122% last quarter. Amazon is now the third largest digital advertiser in the U.S. behind only Google and Facebook (NASDAQ:FB) and is expected to continue to expand its digital ad business as more consumers begin their product searches on Amazon platforms.

Another area of interest is Amazon’s subscription services unit, which includes Prime memberships along with other non-AWS subscriptions. Division revenues surged 25% to $3.96 billion. This marked a significant downturn from Q3’s 52% climb and Q4 2017’s 47% jump and is a potentially bad sign for its core commerce business and its ability to compete against Netflix (NASDAQ:NFLX) and soon enough Disney (NYSE:DIS) , AT&T (NYSE:T) , and others in the streaming entertainment age.

Outlook

Looking ahead, there are clearly worries on the revenue growth front. Amazon now forecasts revenue between $56 billion and $60 billion in the current quarter. This came in below our current $61.19 million estimate that would mark 20% growth. The low-end of AMZN’s new guidance would represent less than a 10% expansion from Q1 2018 and represent its worst showing since 2001. We should, however, remember that Amazon can be conservative with its projections.

Amazon stock also likely slipped Friday based on the possibility of a slowdown in what was supposed to a hugely impactfully emerging market. India is poised to increase restrictions on foreign e-commerce companies, which comes directly after Amazon’s international sales growth slowed to 15% in Q4 compared to the previous year's 29% climb. “There is much uncertainty as to what the impact of the government rule change is going to have on the e-commerce sector there,” CFO Brian Olsavsky said on Amazon’s earnings call.

“Our main issue and our main concern is trying to minimize the impact to our customers and sellers in India.”

Bottom Line

On the positive side, Amazon’s third-biggest revenue increase came from its higher margin third-party seller business. And even with a projected top-line slowdown, Amazon will remain a cloud giant and a retail powerhouse that scares the likes of Walmart (NYSE:T) and Target (NYSE:T) . Plus, Amazon said it will invest more heavily this year as it prepares to possibly shake up other industries.

Amazon stock fell over 4% through morning trading Friday to $1,646 a share, which marked a 20% downturn from its 52-week high.

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