Amazon Earnings Review: Strong Performance but Weak Q1 Outlook Pressures Shares

Amazon delivered better-than-expected Q4 2024 results, surpassing analyst estimates on EPS, revenue, and operating income. However, concerns over its Q1 2025 guidance led to a negative market reaction, sending the stock down in after-hours trading. Despite robust AWS performance, strong retail execution, and improved profitability, the company’s weaker-than-anticipated sales forecast and higher capital expenditures raised investor concerns.

Earnings Performance

Amazon posted Q4 earnings per share (EPS) of $1.86, well above the consensus estimate of $1.49. Net sales came in at $187.8 billion, a 10% year-over-year increase, slightly exceeding analyst projections of $187.3 billion.

Operating income also outperformed significantly, rising 61% year-over-year to $21.2 billion, compared to expectations of $19.15 billion. This strong profitability was driven by efficiency gains, higher-margin service revenue, and AWS strength. Net income nearly doubled year-over-year to $20 billion, reflecting Amazon’s improving cost discipline and robust sales momentum.

Segment Breakdown

North America

- Sales increased 9.5% year-over-year to $115.6 billion, surpassing the consensus of $114.27 billion.

- Operating margin expanded to 8%, a significant improvement from 6.1% in Q4 2023.

- The retail business benefited from logistics efficiencies, pricing strategies, and advertising revenue growth.

International

- Sales rose 7.9% year-over-year to $43.42 billion, missing the estimate of $44.13 billion.

- Operating margin improved to 3%, up from a -1% loss in Q4 2023, showing signs of profitability turnaround.

Amazon Web Services (AWS)

- AWS revenue grew 19% year-over-year to $28.79 billion, slightly below the $28.82 billion expectation.

- Operating income for AWS surged 48% year-over-year to $10.63 billion, reaffirming its role as Amazon’s most profitable segment.

- AWS strength was driven by increasing AI-driven workloads, cloud adoption, and improved infrastructure efficiency.

Revenue Mix

- Product Sales: $82.23 billion

- Services Sales: $105.57 billion

- AWS Total Sales: $107.6 billion (for the full year)

Amazon’s third-party seller services, which contribute significantly to profit margins, rose 9% year-over-year to $47.49 billion. However, this slightly lagged the consensus estimate of $48.02 billion.

Q1 2025 Guidance Disappoints

Amazon’s Q1 2025 guidance came in below expectations, sparking a negative market reaction.

- Revenue Outlook: $151 billion to $155 billion, falling short of the $158.45 billion consensus.

- Operating Income: $14 billion to $18 billion, compared to analyst estimates of $18.35 billion.

- The company cited a $2.1 billion hit from foreign exchange headwinds and a $1.5 billion negative impact from the Leap Year comparison as key factors weighing on its outlook.

Following the announcement, Amazon shares dropped more than 7% in after-hours trading, reflecting investor disappointment in the weaker-than-expected revenue forecast.

Key Drivers Behind Q4 Performance

Retail Business Optimization

- Improved cost efficiency and logistics management helped expand North America retail margins.

- Growth in third-party sales and advertising revenue contributed to higher profitability.

AWS Strength and AI Investments

- AWS remained a growth driver, with demand for AI-driven cloud services accelerating.

- The company continues to invest heavily in AI infrastructure, positioning itself for long-term cloud dominance.

Advertising Business Expansion

- Ad revenue has become a major profitability driver, helping offset retail margin pressures.

- Subscription services revenue grew 9.7% year-over-year to $11.51 billion, indicating strong Prime membership retention.

Capital Expenditures and Investment Outlook

Amazon significantly increased its capital expenditures (CapEx) in Q4, with spending reaching $27.8 billion, largely focused on AWS infrastructure and AI initiatives. For 2025, Amazon plans to spend approximately $104 billion in CapEx, well above the $80-$85 billion consensus estimate.

CEO Andy Jassy emphasized that these investments are necessary for scaling AWS, AI development, and logistics optimization, but investors will be closely watching whether these expenditures yield long-term revenue acceleration.

Market Reaction and Investor Sentiment

Despite strong Q4 profitability and robust AWS performance, the weak Q1 sales outlook and rising capital expenditures dampened investor sentiment. Shares fell over 7% in after-hours trading, reflecting concerns over:

1. Slower-than-expected Q1 revenue growth.

2. Higher CapEx commitments, raising questions about near-term free cash flow.

3. Potential margin pressure as AI investments scale up.

Final Thoughts

Amazon delivered a strong Q4 performance, exceeding expectations on EPS, revenue, and profitability. However, concerns about Q1 guidance and CapEx spending weighed on investor sentiment.

Key takeaways:

- AWS remains Amazon’s biggest growth driver, with strong profitability and AI-driven expansion.

- Retail efficiency gains helped boost margins, despite some weaker-than-expected international sales.

- CapEx will be a major focal point in 2025, with Amazon betting heavily on AI and cloud infrastructure.

While short-term concerns about revenue guidance and investment spending exist, Amazon’s long-term fundamentals remain solid. Investors will be watching closely to see whether AWS growth accelerates further and whether retail margin improvements sustain momentum in 2025.