- Amazon reported strong earnings on Tuesday, but the news was overshadowed by Jeff Bezos stepping down from his role as CEO.
- The e-commerce giant reported a 44% increase in revenues which hit $125.6 billion in the quarter.
- AWS cloud services, international sales, and advertising revenue were standouts during the quarter.
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Amazon’s fourth-quarter earnings impressed on Tuesday, matching high analyst expectations.
The company managed a 44% year-over-year revenue jump in the quarter, breaking the $100 billion net sales mark for the first time just days after Apple managed a similar feat.
Revenues beat analyst consensus estimates by $5.82 billion, hitting $125.6 billion. Fourth quarter GAAP earnings per share were also a standout, beating consensus estimates by nearly $6.96 to hit $14.09 per share. Free cash flow also increased to $31 billion for the trailing twelve months period, compared with $25.8 billion from a year ago.
The standout earnings release comes as Amazon continues to benefit from an increased stay-at-home audience due to the pandemic.
However, the biggest news from Tuesday's earnings release wasn't earnings-related at all, but the announcement that Jeff Bezos will be stepping down as CEO. Bezos will transition to a new role as chairman while Amazon Web Service's head Andy Jassy steps into the CEO role.
"Amazon is what it is because of invention. We do crazy things together and then make them normal," said Jeff Bezos, Amazon founder, and former CEO.
"If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you're actually seeing are the long-run cumulative results of invention. Right now, I see Amazon at its most inventive ever, making it an optimal time for this transition."
Here's what four major Wall Street banks said about the earnings report and Amazon's trajectory.
Morgan Stanley: 'Another everything quarter'
Morgan Stanley analysts, led by Brian Nowak, CFA, were pleased with Amazon's results on Tuesday. The firm said Amazon's "core retail business continues to benefit from and drive the global e-commerce inflection."
The analysts added that they believe the Street is "underestimating the scalability of Amazon's model" and that they expect upward profit revisions even if revenue from the main e-commerce business decelerates post-pandemic. Morgan Stanley's model has Amazon reaching "$102 billion in adjusted EBITDA" by 2022.
Analysts at the firm also touched on Jeff Bezos' exit, saying they believe investors might react negatively, but they aren't as worried.
The analysts gave three main reasons why the CEO change isn't a negative for the company. First, Bezos is "not completely disengaging" from business operations and will remain on as chairman. Second, the "bench is deep," Bezos' 'S-team' includes 26 executives in charge of each business line across Amazon. And third, Andy Jassy has been with the company for 20 years and built Amazon's cloud business, AWS, meaning experience is at the helm.
Morgan Stanley remains "overweight" on Amazon and raised its price target to $4200 from $3750.
Evercore: International growth a 'notable standout'
Evercore analysts, led by Lee Horowitz, were also impressed by Amazon's quarterly results. The firm raised its 2021 revenue and operating income estimates by 3% to $469 billion and $28 billion respectively after the strong showing.
The analysts highlighted strong international results in particular. Amazon saw year-over-year revenue growth of 57% internationally, up almost 20 points from a year ago. Management indicated the timing of Prime Day coupled and more aggressive lockdowns across Europe were the primary factors in the international strength in the quarter, but the strong performance and margins in the segment have analysts bullish.
Evercore reiterated its "outperform" rating for Amazon and increased its price target from $3,700 to $3,795.
Goldman Sachs: 'Signs of growth acceleration across all segments'
Analysts at Goldman Sachs, led by Heath P Terry, CFA, were also bullish on Amazon after earnings. The firm highlighted AWS's 28% revenue growth and "elevated" backlog which grew 68% year-over-year.
The firm also noted North America GAAP operating margins improved to 3.9% versus just 3.5% in the year prior and mentioned accelerating advertising revenue, which jumped 66% year-over-year.
"We continue to believe that the long-term steepening of Amazon's growth curve driven by the acceleration of consumer adoption of e-commerce, Amazon's increasing value to advertisers, and enterprise adoption of cloud computing all enabled by the company's investments in fulfillment and infrastructure, and the associated high returns, are likely to drive share price outperformance well beyond the current crisis," the analysts wrote.
Goldman Sachs reiterated its "buy" rating for Amazon and increased its price target from $4,200 to $4,500.
Bank of America: Fourth quarter beat 'driven by retail profitability'
Bank of America was similarly upbeat on Amazon's most recent quarter. Analysts led by Justin Post raised their top and bottom-line guidance for Amazon by 6% post-earnings citing a continued benefit from the outperformance of advertising and the AWS division.
The analyst also touched on Jeff Bezos' exit writing the change may be "a negative for near-term stock sentiment."
Still, the Bank remains upbeat about the new CEO's potential saying, "we remain constructive on Amazon's position and management given: 1) Andy Jassy is an innovative Cloud leader with significant understanding of Amazon's investment culture; 2) Other large-cap tech stocks have innovated and performed well under new leaders; 3) Jeff Bezos will still be involved in managing Amazon as Executive Chair of the Board."
One area of concern Bank of America did note was AWS margins, which fell below Street estimates despite 28% revenue growth for the segment in the quarter. The analysts said competitors like Google and Microsoft "continue to invest heavily in the cloud" which could lead to increased competition going forward.
Bank of America reiterated its "buy" rating on Amazon and increased its price target from $4,000 to $4,150.