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Amazon’s AWS Business Drives A Massive Estimate Beat In Fourth Quarter

Amazon’s AWS Business Drives A Massive Estimate Beat In Fourth Quarter
According to analysts, the American e-commerce giant Amazon is likely to make good forecasts for future quarters which will help stir its share prices up. The company recently announced very good fourth quarter results which beat analysts’ estimates by a fair distance. 
One of the major contributors to the recent successful quarter for Amazon has been its Amazon Web Services (AWS) as it did most of the heavy lifting and has turned out to be one of the most important growth areas for the company. This unit had a huge contribution to the operating income of the company in the fourth quarter. AWS managed to record an growth in operating income despite a drop in sale growth.
In the previous two quarters, Amazon missed analysts’ estimates by a wide margin and therefore needed to deliver in the fourth quarter on earnings. With the growth of Amazon as a company, and its share prices reaching record high, investing in the company is less about revenue growth and more about earnings growth from investors’ perspectives. While it seemed at one point that investors would over look the bottom line disappointments of the company in favor of strong growth, that theory was proved wrong when its shares started to suffer after a disappointing second-quarter results delivered by it in July last year.
And since then, it appeared that investors were giving up on the company as analysts continuously cut back on their earnings outlook for Amazon.
But with the latest quarter earnings comfortably beating analysts’ estimates show its ability to deliver better than expected earnings and increasing the possibility of significant increase in stock valuation.
There was a 34 per cent growth in revenues in the fourth quarter for Amazon’s AWS business and despite the very impressive number it was the slowest for the division since the fourth quarter of 2016. The revenues reached just under $10 billion. But despite the slowdown in revenue growth, the company managed to drive a better operating income for the unit at about $2.6 billion which helped the business to achieve an operating margin of approximately 26.1 per cent. That was highest for the unit in 2019. About 67 per cent of the total operating income of $3.88 billion of Amazon was accounted for by its AWS business.
This high operating margin of the AWS business helped to drive the company to beat earnings estimates by a huge margin – reporting earnings of $6.47 per share against estimates of $4.03 per share. The revenues also beat expectations at $87.4 billion compared to estimates of $86.02 billion.
There was however also strong growth in its other businesses as well. There was a 30 per cent increase in revenues for the third-party sellers at approximately $17.5 billion and a 32 per cent growth in revenues of subscription services at about $5.2 billion.
Analysts say that with this quarterly result, Amazon has been able to demonstrate that it has the capability to deliver better than expected resulted when the occasion arises.

Christopher J. Mitchell

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