Amazon reported strong Q4 2024 results, something that we expected based on our fulfillment center visitation data from the past few months (below).
Looking at just the North American Retail segment, units sold grew +12%, or about +200 basis points quarter-over-quarter, which reflects more convenience (vis-a-vis same-day and next-day delivery) and strong execution in October and November, (i.e., the company moved “early” and were “disruptively in value” with the Prime Big Deal Days events in October). Amazon is putting lower costs from inbound freight (ocean, rail, etc.) into lower prices for customers. We also suspect that it is winning lower prices for customers from its vendors and third-party sellers. Between the two, the company has generated over $10 billion in savings to consumers according to management.
For Q4 in the U.S, we estimate that Amazon’s gross merchandise volume (GMV) grew +13% versus other online-only retailers/brands growing +0.5% in aggregate (per the U.S. Census Bureau’s monthly retail sales survey). Lastly, Q4/Q3 seasonality was stronger this year, confirming a strong result for the season, and good momentum heading into 2024. Management’s solid guidance confirms that Q1 has started well and their profit guidance of up to $12B is just below Q4’s $13B level despite the adverse seasonality.
The acceleration in the growth rate of first-party sales (i.e., products sold directly by Amazon) likely reflects the company's push into consumables (called “everyday essentials” by management). This includes home, health, and personal care, as these become more considered by consumers because of the same/next-day delivery (these deliveries were up +65% year-over-year). These categories lead to an increase in shopper frequency, and in turn, increased consideration for other categories (i.e., the Amazon flywheel). Amazon is also lowering the cost-to-serve by pushing more inventory closer to the consumer, its so-called regionalization initiative. In Q4, Amazon’s cost-to-serve declined $0.45 per unit year-over-year, which allows them to offer more lower penny-profit items as same/next-day delivery items (again, the Amazon flywheel). 2024 will see more on lowering the cost-to-serve and opening more items to same/next-day. In our opinion, Amazon’s share gains in these categories is one of the causes for the weak visitation to the drugstore channel.
Strong results in retail, combined with robust revenue growth in Prime (+13% year-over-year) and advertising (+26%), led to segment margin expansion from 2.6% to 6.2%. Also striking is that advertising (North America only) at $47B annualized is twice the size of Prime revenue ($23B). Moreover, the growth of Amazon's advertising business in the U.S. (+$10B annualized) is similar to Google’s search business. In terms of other numbers, Amazon Web Services (AWS) produced $25B in profits for the year, total company operating cash flow was $85B, free cash flow was $37B, and ending cash and equivalents was $86.7B. Inclusive of these numbers was capital expenditures and finance leases of $57B. $57B certainly builds a lot of “new rail line.”
