Hi YXI friends,

Amazon sold off 4% on Friday after the latest earnings results. Investors complained about the soft guidance for FY2025, disappointing Third-party seller services, and monetisation concerns for the huge CapEx this year.

Is this a buy the dip opportunity, or time to kiss another Mag-7 giants goodbye?

Today, we will review the Q4 earnings in great detail and analyse Amazon’s valuation and price technicals. Spoiler Alert: I think we have a near-term opportunity here.

(House Keeping: Tomorrow I will be writing a review on Friday’s Nonfarm Payrolls, with a look ahead to Wednesday’s CPI data. My baseline is that the Fed is unlikely in a rush to cut rates soon (at least before June) given the latest Nonfarm report. If you have friends or colleagues who are interested in our macro updates, please kindly share YX Insights with them.)

Table of Contents

• 1. Overall Growth Is Slowing, But AWS Keeps Pace

• 2. Profitability Continues To Improve

• 3. Valuation Is Attractive

• 4. Technical Analysis

• 5. Rating: Overweight

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Overall Growth Is Slowing, But AWS Keeps Pace

Quarterly Revenue

The total Q4 revenue was $187.79 billion, its growth rate slowing from 13.9% YoY in Q4 2023 to 10.5% in Q4 2024.

For Q1 2025, the management guides a mid-point of $153 billion in revenue, or 7% YoY. This is a slow down from Q4 and the last year, even if the results arrive at the upper end of the guidance at 9% growth.

TTM Revenue

For the full year, TTM revenue reached $637.96 billion, a 11.0% YoY increase. This is not substantially different to the previous four quarters.

Business Segments

North America by far contributes the largest percentage share of the revenue, nearly two-thirds.

While AWS only contributes to 15% of the revenue, do not be fooled. It is by far the most significant value driver of Amazon’s stock price. I will show you why in the valuation section.

North America saw sales improve by 9.5% YoY to $116 billion. This increase reflected the strong consumer demand during the holiday season, especially on Prime Day, Black Friday, and Cyber Monday.

International sales rose by 7.9% YoY to $43 billion. Growth benefited from Amazon’s continued push into emerging markets such as India and Latin America.

However, this segment was weaker than North America due to FX headwinds (international sales converting into lower USD revenue) and global economic softness (lower customer spending generally).

AWS revenue grew by a consistent 19% to $28.8 billion. This is the segment that investors care most about, due to its high growth, high margin nature.

Before AI was all the hype, AWS benefitted, and continues to benefit, from the global enterprise cloud migration.

Currently, AI-powered AWS services, such as Bedrock and Nova AI models are driving high client demand. In December, AWS launched Trainium 2 AI chips, which claim to have 30-40% better price-performance compared with the current GPUs on the market. Amazon notes that the AWS AI revenue enjoys a triple-digit growth YoY, but is limited by supply constraints on GPUs, power, and chips. This is why they have been ramping up on CapEx.

The key challenges for AWS is how well received its custom chips (AWS Trainium and Inferentia) will be compared with higher-grade chips from Nvidia or AMD. Its heavy CapEx spend has not seen material uplift in the monetisation yet, which makes the ROIC an uncertainty in the near term. Moreover, AWS faces pricing competition from Microsoft Azure & Google Cloud.

Amazon Business Categories by Product & Services

Online stores are the biggest revenue driver for Amazon, a head of Third-party seller services and AWS. Advertising services are growing rapidly but still a relatively small piece of the pie.

Online stores revenue reached $75.6 billion in Q4, an increase of 7% YoY. The growth primarily reflected higher order volumes from Prime members, especially during holiday season sales such as Black Friday and Cyber Monday.

In E-comm, there is strong competition from Walmart, Shopify, and infamously, Temu. In a direct response to Temu’s undercutting, Amazon launched Amazon Haul in Q4. Amazon Hall is a mobile shopping app to help shoppers find “a broad selection of products $20 or less, with most under $10”.

Physical stores revenue brought in $5.6 billion, 8% more than a year ago. Growth was driven by the Whole Foods and Amazon Fresh expansion globally. A key Amazon has pushed forward is the checkout-free Amazon Go stores, which I personally really enjoy using. Overall, however, Amazon’s physical stores will remain a fraction of its core e-commerce business.

Third-party seller services hit $47.5 billion in revenue, up 9% YoY. Third-party sellers now account for 61% of all Amazon unit sales, reflecting Amazon’s focus on its marketplace model. This inventory-light model helps increase the operating margins.

In the quarter more sellers are opting for Fulfillment by Amazon (FBA), which led to increased service fees. Moreover, there were more ad placements by third-party sellers in the quarter too.

Advertising services revenue rose by 18% to $17.3 billion in Q4. This was a much faster growth than the business categories above. Amazon’s key feature offering is the “Sponsored” listing, which has attracted increased spending by advertisers. Streaming video ads also emerged as a new revenue source.

Furthermore, Amazon boasts to be ahead of Google and Meta in e-commerce related ad revenue. Going forward, Amazon expects strong tailwinds from AI and video ads. This is in line with our read across from Meta’s ambitions.

Subscription services revenue increased by 10% to $11.5 billion, driven by increased Prime memberships and higher retention rates. Unique to subscription providers, Amazon Prime combines several online and offline perks into one deal across faster shipping, streaming, and grocery deals. Amazon stated that Prime members saved $15 billion during Prime Big Deal Days, Black Friday, and Cyber Monday.

Prime Video is also benefiting from additional monetisation drivers such as ads and exclusive sports content. Amazon is currently promoting its Amazon One Medical subscription service, which may be a future revenue driver.

Others include Echo and Alexa devices, as well as smart home products like Fire TV. However, it contributes just 1% of the overall revenue.

2. Profitability Continues To Improve

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