Great quarter from AMZN as we expected. Total revenue accelerated to +13% in C$ vs 11% last Q. Gross margins came in ahead of our model +294bps vs +285bps last Q driving a gross profit acceleration of 200bps to +22%. SG&A leveraged as the company becomes smarter about costs and capital allocation making for EBIT growth of 383%, the best the company has seen since 2018. The weakest output was perhaps that AWS was only inline, but it accelerated 100bps, and the company is expecting accelerating trends to continue into 2024. We have no reason to doubt that. The margin ramp is huge as high margin businesses accelerated with Advertising up 26% and AWS up 13%.
The guide looks just as solid, with revenue straddling the street and the top end coming in right around our model, and keep in mind that the company has come in above the top end of the rev range for 5 straight Qs. The mid point of EBIT implies 11% upside to the Street, and the top end was slightly above our estimate which was 30% ahead of consensus. We will note that the company had a useful life assessment adjustment which will be a 900mm help in 1Q. Our model is going up, mainly on the gross margin line, revenue about the same with slightly lower growth in AWS than we previously had. For now we’re coming in above the top end for 1Q24 EBIT with revenue right around the top end of the guide.
The TREND acceleration that made this a higher conviction long ahead of the summer 2Q print has been playing out and the Long is working. From here consensus expectations will go higher, which will make AMZN look somewhat cheap at 14x EBITDA for a company growing EBIT in excess of 50%. We think the stock can break towards all time highs ($175+) on the near term upward revision cycle, but as we look into the rest of 2024 growth rate of change is highly likely to slow, meaning the multiple is less likely to see upside. Best Idea Long for now, but TREND setup is likely to flip reasonably soon.
Key Ecosystem Callouts:
Capex Going Up - “We define our capital investments as a combination of CapEx plus equipment finance leases. In 2023, full year CapEx was $48.4 billion, which was down $10.2 billion year-over-year, primarily driven by lower spend on fulfillment and transportation. As we look forward to 2024, we anticipate CapEx to increase year-over-year primarily driven by increased infrastructure CapEx to support growth of our AWS business, including additional investments in generative AI and large language models”
Continued Same Day Investment - “In 2023, Amazon delivered to Prime members at the fastest speeds ever, with more than 7 billion items arriving same or next day, including more than 4 billion in the U.S. and more than 2 billion in Europe. In the U.S., this result is the combination of two things. One is the benefit of regionalization where we rearchitected the network to store items closer to customers. The other is the expansion of same-day facilities where in the U.S. in the fourth quarter, we increased the number of items delivered the same day or overnight by more than 65% year-over-year.”
Sponsored Video Ads – “We've recently added sponsored TV to this offering in the U.S., a self-service solution for brands to create streaming TV campaigns with no minimum spend, putting this advertising within reach of any business. While still early days, streaming TV advertising continues to grow quickly. Brands are using our capabilities to reach engaged viewers on Twitch, Freevee, Fire TV and Prime Video shows and movies, which just launched in the U.S., as well as Thursday Night Football.”
Gen AI Rufus For Product Discovery – “This morning, we launched Rufus, an expert shopping assistant trained on our product and customer data that represents a significant customer experience improvement for discovery. Rufus lets customers ask shopping journey questions, like what is the best golf ball to use for better spin control or which are the best cold weather rain jackets, and get thoughtful explanations for what matters and recommendations on products. You can carry on a conversation with Rufus on other related or unrelated questions and retains context coherently. You can sift through our rich product pages by asking Rufus questions on any product features and it will return answers quickly. We're at the start of what Rufus will do with further personalization and expansion coming, but we're excited about how it will make discovery even easier on Amazon.”
Satellite Broadband – “In October, we had a major milestone in our journey to commercialize Project Kuiper, which is our low Earth orbit satellite initiative that aims to provide broadband connectivity to the 400 million to 500 million households who don't have it today. We launched 2 end-to-end prototype satellites into space and successfully validated all key systems and subsystems, made a two-way video call, streamed a Prime Video movie in Ultra HD 4K and made an Amazon purchase over our end-to-end communication network. It's rare to be able to exercise all these elements in an initial launch like this. We're on track to launch our first production satellite in the first half of 2024 and started beta testing in the second half of the year.”
NFL & Video Content – “During the quarter, we also completed our second season of Thursday Night Football, which was a rousing success, by all accounts. The customer experience continued to improve as our talent, production, streaming quality, analytics, unique AI features like Prime Vision and Defensive Alerts, all took big leaps forward on top of the very good start last year. We launched a new NFL tradition with the inaugural Black Friday football game and our continuous innovation resonated with viewers as the number of people watching increased 24% year-over-year and with advertisers as we made dramatic year-over-year gains in ad sales. We have increasing conviction that Prime Video can be a large and profitable business on its own, and we'll continue to invest in compelling exclusive content for Prime members like Thursday Night Football, Lord of the Rings, Reacher, Mr. & Mrs. Smith, Citadel and more. And with the addition of ads in Prime Video, we'll be able to continue investing meaningfully in content over time.”
