Amazon Delivers Mixed Quarter; FVE Steady at $4,100

We are maintaining our fair value estimate for wide-moat Amazon AMZN at $4,100 per share, and despite shares rising 14% after hours, we still view shares as undervalued. We think the highlight of the quarter was Amazon's plan to raise prices in the U.S. on Prime to $139 from $119, beginning on Feb. 18 for new members, underscoring Amazon's pricing power and highlighting Prime as a revenue driver. Meanwhile, Amazon will continue to invest heavily in Amazon Web Services, or AWS, fulfilment capacity and delivery, although we see these beginning to ease in the second half of 2022. Overall, we do not see issues with the long-term story as Amazon remains well positioned to prosper from the secular shift toward e-commerce and the public cloud over the next decade.

Fourth-quarter revenue grew 9% (10% in constant currency) year over year to $137.4 billion, compared with guidance of $130 billion to $140 billion. Pandemic-fueled growth last year in online stores and third-party seller services continued to slow to a 1% decline and 11% growth year over year in the quarter, respectively, while physical stores enjoyed the benefit of easing lockdowns and grew by 17% year over year. The company continues to suffer from labor issues and increasing shipping costs, although the impact from these items came in as expected for the quarter. Still, operating profit came in better than we anticipated and above the high end of the guidance range.

Compared with the year-ago period, subscription services slowed to 15% growth, AWS accelerated again to 40% growth, and advertising decelerated to 32% growth. Management broke out advertising revenue as a distinct segment for the first time—we were pleased to see that it was 93% of the "other" segment and was higher than our prior estimates. Performance of AWS remains impressive with a fourth straight quarter of acceleration off of a $13 billion revenue base a year ago. We continue to view advertising and AWS as key long-term drivers for shares.

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