In the fourth quarter of 2023, Amazon reported impressive financial results, with revenue of $170 billion, up 13% year-over-year. The company’s success can be attributed to the continued growth of its core businesses, as well as new innovations and investments.
One of the main drivers of Amazon’s growth was its stores business. Customers responded well to the focus on selection, price, and convenience, with Amazon offering the broadest retail selection and adding tens of millions of new items last year alone. Prime membership continued to grow, and customers saved nearly $10 billion across millions of deals. In the U.S., Amazon delivered to Prime members at the fastest speeds ever, with over 7 billion items arriving same or next day.
Another area of growth for Amazon was its advertising business. Revenue grew 26% year-over-year, primarily driven by sponsored ads. The company recently added Sponsored TV to its offering, a self-service solution for brands to create streaming TV campaigns with no minimum spend. Streaming TV advertising continues to grow quickly, with brands using Amazon’s capabilities to reach and engage viewers on Twitch, Freevee, Fire TV, and Prime Video shows and movies.
Moving on to new products and services, Amazon Web Services (AWS) revenue grew 13% year-over-year, with a significant number of new and large contracts signed. AWS is a critical component of Amazon’s business, providing infrastructure and platform services for building, deploying, and managing applications and workloads in the cloud.
One of the newest offerings from AWS is Bedrock, a new service for building, deploying, and managing large language models. Bedrock is off to a strong start with many thousands of customers using the service after just a few months. The team continues to rapidly iterate on Bedrock, recently delivering capabilities including guardrails to safeguard what questions applications will answer, knowledge bases to expand models’ knowledge base with retrieval-augmented generation or RAG, real-time queries, agents to complete multi-step tasks, and fine-tuning to keep teaching and refining models.
Another new offering from Amazon is Amazon Q, an expert shopping assistant trained on Amazon’s product and customer data. Q lets customers ask shopping journey questions like what is the best golf ball to use for better spin control or which are the best cold weather rain jackets and get thoughtful explanations for what matters and recommendations on products. Q uses machine learning to understand the context of the question and can carry on a conversation on related or unrelated questions, retaining context coherently.
In the pipeline, Amazon continues to invest in new areas, such as generative AI, which includes a suite of technology and services for developing, deploying, and scaling AI applications. The company also continues to invest in its low Earth orbit satellite initiative, Project Kuiper, which aims to provide broadband connectivity to underserved areas. Additionally, the company is expanding its Prime Video offering, including Thursday Night Football and other exclusive content.
Overall, Amazon’s recent product and service developments have been highly successful, with strong growth in its core businesses and impressive momentum in new areas like generative AI and advertising. The company continues to innovate and invest, positioning itself for long-term growth.
The future roadmap of Amazon is focused on continuing to innovate and invent for customers, improve the customer experience, and lower costs while maintaining a focus on growth. The company plans to achieve this through ongoing investments in various areas.
One major area of investment is in generative AI, which is expected to drive tens of billions of dollars of revenue for Amazon over the next several years. The company is building dozens of generative AI applications across its businesses, many of which have already been launched. These applications include a shopping assistant, product fit recommendations, inventory forecasting, and more.
Another major area of investment is in logistics and fulfillment, with a focus on regionalization and lowering costs. The company is optimistic about the potential upside for reducing costs while delivering faster for customers and has identified several areas of focus for 2024, including inbound fulfillment architecture and resulting inventory placement.
Amazon’s advertising business is also a significant area of focus, with revenue growing 26% year-over-year in Q4. The company is continuing to democratize AI and is seeing significant interest from customers wanting to run generative AI applications and build large language models and foundation models.
The company is also making progress on newer business investments, such as Project Kuiper, its low earth orbit satellite initiative aimed at providing broadband connectivity to the 400 million to 500 million households who don’t have it today. The company launched two prototype satellites into space and successfully validated all key systems, marking a major milestone in its journey to commercialize the project.
Despite these exciting plans, there are also risks that the company may face in the future. These include fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, customer demand and spending, inflation, interest rates, regional labor market constraints, world events, and the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies. The company plans on mitigating these risks through diversification, flexibility, and a focus on long-term innovation and investment.
In conclusion, Amazon’s future roadmap is focused on continuing to innovate and improve for customers while investing in key areas such as generative AI, logistics and fulfillment, advertising, and new businesses like Project Kuiper. Despite the risks, the company remains committed to its long-term vision and is optimistic about the opportunities for growth and innovation ahead.
Q: Eric Sheridan from Goldman Sachs asked about the contribution from backlog conversion, AI workloads, and how AWS’ revenue growth is expected to continue into 2024. He also asked about the component of CapEx that is related to AI-driven initiatives within AWS.
A: “Can you talk a little bit about the contribution from backlog conversion, AI workloads, and some elements that allowed you to reaccelerate revenue at AWS in Q4 and how we should think about those components from an exit velocity standpoint into 2024? And then against your broader comments on CapEx, any color or context on how we should be thinking about AI-driven CapEx within the AWS initiatives against the broader CapEx commentary?”
Andy Jassy and Brian Olsavsky responded by discussing the strong momentum in AWS, with migrations resuming and interest in generative AI growing rapidly. They noted that the revenue growth in AWS accelerated in Q4 and that they expect this trend to continue into 2024. They also mentioned that CapEx will increase in 2024, primarily driven by investments in infrastructure and generative AI projects.
Q: Mark Mahaney from Evercore ISI asked about the continued improvement in North American margins and the expectations for Prime Video, including the potential for substantial upside.
A: “I think you have seen the improvements in North America in terms of capacity utilization, regionalization, and logistics costs. I’m just curious, based on that, do you think that we’ll continue to see improvement in North American margins? And then in terms of Prime Video, you’ve got a massive number of Prime users who are coming in with a reasonable CPM and low ad load. Do you see a significant opportunity there in terms of driving traffic and revenue in the Prime Video business?”
Brian Olsavsky responded by expressing confidence in the improvements in North America and noting that they are continuing to look for ways to lower the cost to serve while increasing the customer experience. He also mentioned that they expect Prime Video to be an important part of the business and that they are excited about the opportunities to monetize it through advertising.
Andrew Jassy added that they have been making significant investments in Prime Video to improve the content and the user experience, and that they believe there is a lot of potential for growth in the business. He noted that they are still in the early stages of monetizing Prime Video and that there are many ways they can continue to innovate and provide value to customers.
Arguments for Buying Amazon Stock: Amazon’s massive scale and customer base, with over 300 million active customers worldwide, offer significant upside for the company. Its extensive logistics and delivery network enable fast and reliable shipping, enhancing customer satisfaction and loyalty. Amazon’s investments in technology, particularly in artificial intelligence and machine learning, position it to develop innovative new products and services, staying ahead of competitors.
Arguments for Selling Amazon Stock: The uncertain economic environment, including inflation, interest rates, and customer demand and spending, pose challenges for Amazon. Continued competition in e-commerce and cloud services markets intensifies the pressure to maintain market share and profitability. The stock’s strong run-up in the past year may indicate a potential bubble, making it a good time for investors to take profits.
