Why Did Amazon Post Impressive Q4 Earnings?

Amazon (NASDAQ:AMZN) reported its fourth-quarter earnings on Thursday after the market close. With Amazon’s earnings out, only one more company in the FAANG group still has to report its earnings for the quarter ending in December 2019. The other company is Alphabet (NASDAQ:GOOGL)—the parent of Google and Waymo.

Amazon’s earnings beat the consensus estimates

Amazon generated revenue of $87.4 billion in the fourth quarter—an increase of 21% YoY (year-over-year). Notably, the revenue beat the consensus estimate at $86.1 billion and smashed the company’s most bullish internal projection at $86.5 billion. The EPS was $6.47, which easily beat the consensus estimate at $3.99. Also, the EPS rose from $6.04 from a year ago.

Amazon stock rose about 10% in extended trading Thursday after its strong earnings results.

The company’s cloud computing, subscription services, and advertising businesses had strong performances, which supported Amazon’s impressive fourth-quarter results.

Strong cloud business continues

Amazon’s cloud computing business, operating as “Amazon Web Services,” recorded a 34% YoY increase in revenue to $10 billion. Overall, the growth shows continued strength in the business despite intensifying competition from Google and Microsoft (NASDAQ:MSFT).

Coming from behind, Google is going all-out to grow its share of the cloud market. For example, the company is going after retail companies that might be wary of running their workloads on Amazon’s cloud. Meanwhile, Google has set its sights on becoming either the biggest or second-biggest cloud company in the world in five years.

Microsoft continues to give Amazon tough competition in the cloud market. Recently, the company won a lucrative Pentagon cloud contract, which was a major blow to Amazon. Microsoft and Oracle have partnered to tackle Amazon in the cloud market.

More subscription revenue

Amazon’s subscription services revenue, which includes the Prime membership fee, rose 32% YoY to $5.2 billion. In Amazon’s earnings release, CEO Jeff Bezos revealed that there are over 150 million Prime members globally. In comparison, the number represents a huge leap from 100 million Prime members in April 2018. Amazon Prime members pay an annual or monthly fee to unlock several perks like free delivery. The program costs $119 a year or $12.99 a month.

Amazon’s advertising business grew 41%

Facebook (NASDAQ:FB) and Google will likely be concerned about Amazon’s fourth-quarter earnings report. In the fourth quarter, Amazon’s segment that houses the advertising business generated $4.8 billion in revenue—an increase of 41% YoY. The advertising segment recorded the fastest growth of any Amazon segment in the fourth quarter. According to eMarketer data, Amazon is eating into Facebook and Google’s dominance in the digital advertising market.