Amazon Crushes Operating Income Estimate Thanks to AWS
Amazon (NASDAQ: AMZN) reported fourth-quarter fiscal year 2021 earnings after the market closed on Feb. 3. The market liked what it saw from Amazon, and the stock is up more than 13% since the report's release.
The e-commerce and web-services giant surged past its operating-income forecast. The outperformance is due primarily to its Amazon Web Services (AWS) segment. Fortunately for shareholders, Amazon's most profitable segment is also the fastest-growing. What follows is a deeper look at the figures that have Amazon shareholders so excited.
Image source: Getty Images.
AWS boost operating profit above forecast
Overall, net sales increased to $137.4 billion for Amazon in Q4, a 9% increase from last year's same quarter. The sales growth was above the midpoint of management's guidance for Q4 of $135 billion. Since the pandemic onset, customer shopping on Amazon.com has surged, as people looked to avoid shopping in person. Surprisingly, consumer demand is resiliently growing at Amazon, despite the economy reopening.
Better-than-expected sales also helped drive operating profits, which came in above expectations. Management forecast operating income between $0 and $3 billion for Q4. Actually, Amazon earned an operating income of $3.5 billion, higher than even the top of the guidance range.
It doesn't hurt that Amazon's most profitable segment is accelerating and growing faster than the rest of the business. Indeed, AWS grew revenue by 40% in Q4 from the same quarter last year. That puts together a streak of four consecutive quarters where AWS has accelerated sales growth.
This is crucial for Amazon because, in Q4, AWS's operating profit margin was 29.8%. Meanwhile, its other two business segments reported negative operating profits. AWS earned $5.3 billion, and the rest of the business collectively lost $1.8 billion. Needless to say, shareholders were pleased that AWS grew faster than the rest of Amazon.
CFO Brian Olsavsky highlighted the segment's success in the conference call that followed the earnings release:
And AWS saw a continuation of the strong usage and revenue growth we've seen throughout 2021. AWS added more revenue year over year than any quarter in its history, and it's now a $71 billion annualized run rate business, up from $51 billion run rate 1 year ago.
What this could mean for Amazon investors
The growth of AWS is an excellent sign for shareholders who have endured many years of small operating-profit margins at Amazon. Now that AWS is growing to become a more prominent contributor, operating profits are exploding. In the last decade, operating income has increased more than 20-fold for Amazon, from $862 million in 2011 to $22.9 billion in 2020.
It's no surprise, then, that the stock price shot up following the earnings announcement, which revealed another quarter of accelerating growth in AWS.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Parkev Tatevosian owns Amazon. The Motley Fool owns and recommends Amazon. The Motley Fool has a disclosure policy.
