Amazon's first-quarter performance guidance is below expectations, capital expenditures far exceed expectations, and the stock price fell more than 7% in after-hours trading | Earnings Report Insights

Amazon announced its earnings report after the market closed on Thursday, showing that despite exceeding expectations for the holiday season in the fourth quarter, the outlook for the first quarter is poor, leading to a more than 7% drop in the company's stock price after hours. At the same time, Amazon's capital expenditures in the fourth quarter were significantly higher than analysts' expectations and reached a record high. The company's capital expenditures are expected to reach $105 billion in 2025, indicating that Amazon is increasing spending to support the development of its AI business.

Here are the key points from Amazon's fourth-quarter earnings report (including Thanksgiving and Christmas holiday sales):

Key Financial Data:

Net Revenue: Amazon's net revenue for the fourth quarter was $187.79 billion, a year-on-year increase of 10%, compared to analysts' expectations of $187.32 billion.

Capital Expenditures: Amazon's capital expenditures in the fourth quarter were $27.8 billion, far exceeding analysts' expectations of $22.3 billion, setting a new historical high.

Operating Income: Amazon's operating income for the fourth quarter was $21.2 billion, a year-on-year increase of 61%, compared to analysts' expectations of $18.84 billion.

Operating Margin: Amazon's operating margin for the fourth quarter was 11.3%, compared to 7.8% in the same period last year, with market expectations at 10.1%.

Earnings Per Share: Amazon's EPS for the fourth quarter was $1.86, up from $1.43 in the previous quarter, while analysts expected $1.50.

Segment Data:

Net Revenue from Online Stores: Amazon's net revenue from online stores in the fourth quarter was $75.56 billion, a year-on-year increase of 7.1%, compared to analysts' expectations of $74.71 billion.

Net Revenue from Physical Stores: Amazon's net sales from physical stores in the fourth quarter were $5.58 billion, a year-on-year increase of 8.3%, compared to analysts' expectations of $5.40 billion.

Net Revenue from Subscription Services: Amazon's net revenue from subscription services in the fourth quarter was $11.51 billion, a year-on-year increase of 9.7%, with market expectations at $11.58 billion.

AWS Net Revenue: Amazon's AWS net revenue for the fourth quarter was $28.79 billion, a year-on-year increase of 19%, falling short of analysts' expectations of $28.82 billion.

Regional Data:

Net Sales in North America: Amazon's net revenue in the North American market for the fourth quarter was $115.59 billion, a year-on-year increase of 9.5%, with market expectations at $114.27 billion.

Net Sales from International Business: Amazon's net revenue from international business in the fourth quarter was $43.42 billion, a year-on-year increase of 7.9%, with market expectations at $44.13 billion.

First Quarter Performance Guidance:

Net Revenue: Amazon expects net revenue for the first quarter to be between $151 billion and $155.5 billion, below analysts' expectations of $158.64 billion.

Operating Income: Amazon expects operating income for the first quarter to be between $14 billion and $18 billion, below analysts' expectations of $18.24 billion.

Due to the performance guidance falling short of expectations, Amazon's stock price in the U.S. market initially dropped by as much as 7.1% after hours, but after the earnings call, the decline narrowed to about 4.3%. The stock has risen 8.9% so far this year, previously soaring 44% in 2024

Amazon stated in a statement that the lower guidance for first-quarter performance is due to adverse effects from exchange rate fluctuations and the net sales increase of one additional day in 2024 as a leap year.

“This guidance is expected to be adversely impacted by approximately $2.1 billion (150 basis points) from foreign exchange rates.”

“Additionally, it is worth noting that in the first quarter of 2024, net sales increased by approximately $1.5 billion due to the leap year effect.”

AI Capital Expenditure Hits Record in Q4

Amazon CEO Andy Jassy has been cutting costs and focusing the company on three main business pillars: e-commerce, cloud computing, and advertising. He is determined to make Amazon a "supermarket" for AI products and services, investing billions of dollars in data centers and self-developed chips to support AI tasks and challenge market leader NVIDIA.

According to the financial report, Amazon's total property and equipment procurement for 2024 is approximately $83 billion, most of which is allocated for AI infrastructure development. Capital expenditure in the fourth quarter reached $27.8 billion, setting a new quarterly record, significantly higher than analysts' expectations of $22.3 billion. Despite the massive investments, Amazon achieved a year-end cash reserve of over $82 billion for the first time.

Jassy stated in the announcement:

“When we look back at this quarter in the coming years, I think what will stand out is the incredible innovation we demonstrated across all areas of our business, especially in AI.”

During the earnings call, Jassy also mentioned the company's latest Trainium chips, stating:

“Currently, most AI computing is still driven by NVIDIA chips, and we have a deep partnership with NVIDIA, which will continue for the foreseeable future.”

“However, there are currently not many large-scale generative AI applications, but once we reach a certain scale, as we have experienced with applications like Alexa and Rufus, costs will rise rapidly.”

Capital Expenditure Could Reach $105 Billion This Year

Amazon CFO Brian Olsavsky stated during the earnings call that the $27.8 billion capital expenditure level in the fourth quarter will be “relatively representative” in 2025. Based on this trend, Amazon's capital expenditure for 2025 is expected to be approximately $105 billion.

He noted that the “vast majority” of this capital expenditure will be used for AI and cloud services AWS. Olsavsky added that, similar to 2024, most of the expenditure will be aimed at meeting the demand for AI services and supporting the technological infrastructure for North American and international operations.

Currently, major U.S. tech companies are increasing investments in expensive chips, data centers, and real estate to meet the growing demand for AI computing. Alphabet announced on Tuesday that its capital expenditure plan for this year is $75 billion, Microsoft’s capital expenditure is expected to exceed $90 billion this year, and Meta stated that its expenditures will increase by more than 60% in 2024, reaching up to $65 billionHowever, some investors are beginning to question whether this AI investment frenzy is wise. Last week, U.S. tech stocks plummeted after DeepSeek's newly launched generative artificial intelligence model unexpectedly achieved success. This open-source free model costs far less than the top AI technologies in the U.S., yet performs comparably, shocking the market.

CEO: Impressed by DeepSeek, Lower Inference Costs are a Good Thing

Amazon is currently dealing with the impact of DeepSeek, and has followed Microsoft's lead by offering DeepSeek's AI model on its AI service platform, allowing users to freely access and use the technology.

Jassy stated during the earnings call,

"We are impressed by DeepSeek's results, especially in certain training techniques, primarily the adjustment of reinforcement learning training sequences, which allows reinforcement learning to occur earlier without human intervention."

He added that there will be various models in the future, each excelling in different applications, and Amazon hopes to provide as many options as possible for customers.

Despite concerns in recent weeks about lower-cost models like DeepSeek, Jassy stated that inference costs will decrease—this is a good thing for tech companies.

"Sometimes, people assume that if the cost of a certain technology component decreases, in this case, we are mainly talking about inference costs, it may lead to a reduction in overall spending in the technology sector.

"But we have never seen this happen before."

AWS in the Spotlight

Amazon's cloud computing division AWS saw revenue grow 19% to $28.79 billion, slightly below the $28.87 billion expected by analysts surveyed by FactSet. This marks the third consecutive quarter of 19% growth for AWS. The division's operating income was $10.6 billion, exceeding the average analyst forecast of $10.1 billion. Analysts noted that following disappointing cloud performance from Alphabet and Microsoft, the market is particularly focused on Amazon's cloud business data.

Emarketer analyst Sky Canaves stated:

"AWS's growth has not accelerated as expected, but has maintained the growth level of the third quarter, indicating that the company is facing capacity constraints similar to those of Google and Microsoft."

Amazon, in a press release, stated:

The benefits of AWS's innovations typically materialize for customers (and businesses) only months later, but these innovations are important drivers in the current emerging technology environment, and we are excited about the products customers will build based on these innovations.

Competing with Temu and Shein

Additionally, analysts noted that a major highlight of this quarter is Amazon's sales performance during the holiday shopping season. Analyst Sky Canaves referred to it as "a relatively strong performance in the U.S. retail market."

"We estimate that during the holiday period, Amazon accounted for nearly half of U.S. e-commerce growth and will continue to gain market share in overall online sales by 2025, especially as low-cost competitors like Temu and Shein are significantly impacted by recent tariff policies."In the e-commerce business, Amazon faces challenges from new competitors such as Temu and Shein. However, this month, U.S. President Trump announced a suspension of the "de minimis" trade exemption for goods valued under $800, a policy that previously allowed Shein, Temu, and other competitors to avoid import tariffs on low-priced packages from China.

Analysis suggests that this policy change may bring benefits to Amazon, but the company is not completely unaffected. This is because many of Amazon's third-party sellers rely on overseas supply chains, and the "Amazon Haul" service launched by Amazon last November also ships low-priced goods directly to consumers from Chinese warehouses, with prices typically below $20.