‘very impressive profitability to Q4’

Shares of Amazon.com Inc (NASDAQ: AMZN) are up nearly 18% in extended trading after the tech titan topped Street estimates for Q4 profit by a massive margin, despite supply constraints and labour shortages.

Important points in Amazon’s earnings report

Amazon more than doubled its per-share profit to $27.75 from last year’s $11.73. Of $14.3 billion in total quarterly profit, $11.8 billion came from its investment in Rivian Automotive that listed on Nasdaq late last year.

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Sales jumped nearly 10% YoY to a record $137.4 billion, despite a slowdown in online sales, as per the earnings press release. The FactSet consensus was for $3.61 of EPS on a slightly higher $137.68 billion in sales.

On the down side, costs of sales and fulfilment were up 4.0% and 20%, respectively, and are likely to remain a headwind moving forward due to supply chain and staffing issues. Last week, Delano Saporu said AMZN was his top pick in mega-cap tech.

How individual segments performed in Q4

AWS brought in $17.78 billion in revenue and $5.29 billion in operating profit – both handily beating analysts’ estimates. The core eCommerce segment, however, recorded $1.83 billion in operating loss and $119.63 billion in sales. The weakness in eCommerce was primarily attributed to “international”.

At $9.72 billion, revenue from advertising that Amazon reported for the very first time this quarter was up 32% YoY and 27% sequentially. Ad revenue for the full year printed at over $31 billion, beating YouTube’s $28.85 billion. On CNBC’s “Closing Bell”, D.A. Davidson’s Tom Forte said:

Q4 is different from Q2 and Q3 as the high margin businesses, cloud computing and advertising, were able to offset a slowdown in eCommerce, which had a better-than-expected handle on some of the challenges like supply chain and labour shortages. So, very impressive profitability to Q4.

Guidance for fiscal Q1 and price increase

For Q1, Amazon is calling for $3.0 billion to $6.0 billion of operating profit on up to $117 billion in net revenue. This compares to the FactSet consensus of $6.4 billion in operating profit on $120.94 billion in net sales.

Amazon also increased charges for Prime subscription service from $119 a year to $139 a year, to go live from February 18^th. The price increase, as per the New York Times’ Ed Lee, will tell if Amazon has pricing power.

It’s the first time in four years that Amazon raised the price for Prime subscription. The American multinational cited higher costs related to wages and transportation for the increased price.