Amazon.com’s earnings beat was massive, but it wasn’t due to its retail or cloud businesses. It was primarily due to gains on its Rivian Automotive stock holdings.
Rivian’s stock has since dropped precipitously in 2022, so investors should not expect the company’s earnings to be carried by the investment indefinitely. Even without it, Amazon’s core businesses continue to grow at a rapid pace.
AWS continues to outperform its competitors.
Although Amazon’s e-commerce business has had low operating margins in recent years, its cloud computing segment, powered by Amazon Web Services (AWS), has done most of the heavy lifting.
AWS accounted for only 13% of the company’s total revenue in 2021, but it provided 74% of its operating income. It’s because the segment’s operating margin for the year was 29 percent, which was significantly higher than the e-commerce segment’s meager 1.5 percent. AWS is also outpacing its overall revenue growth, implying that it will become a much larger part of Amazon over time.
Amazon announced that it will now report advertising revenue separately from its other segments in an unexpected move. Businesses can pay to place ads in product listings and search results on the Amazon website, and now investors will be able to see how valuable digital real estate is.
The company’s advertising business generated $9.7 billion in revenue in the fourth quarter of 2021, representing a 33% year-over-year increase. And it delivered $31 billion for the entire year of 2021. In comparison, Alphabet’s YouTube video platform earned $28 billion in advertising revenue last year.
Amazon has yet to report anything other than revenue for its advertising business, so we won’t know its profitability until it shares more information.
Rivian, on the other hand, has opened the spotlight
Rivian Automotive went public in November 2021, but Amazon’s involvement with the company dates back much further.
In 2019, it led a $700 million funding round for Rivian and ordered 100,000 of its electric utility vehicles for its delivery fleet. Amazon sees Rivian as a critical component of its plan to convert its entire fleet to renewable energy by 2030.
Despite the fact that Rivian only produced 1,015 vehicles in total in 2021, its stock received tremendous support when it first hit the market, with investors valuing the company at more than $150 billion at its peak.
Rivian stock has lost 41 percent of its value since early 2022, so investors should not consider it will contribute significantly to Amazon’s results in the future.
But, even without the EV maker, there’s no denying the e-commerce giant’s incredible portfolio of businesses, so long-term investors should consider adding Amazon to their portfolios, especially as we learn more about its thriving advertising segment.