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Amazon shares soar on cloud revenue beat and bigger profit gain from Rivian stake

Amazon shares rise profit gain from Rivian stake

February 7, 2022: -On Thursday, Amazon said revenue climbed 9% in the fourth quarter, and the company reported a gain of nearly $12 billion from its investment in electric vehicle company Rivian.

Amazon shares popped almost 14% in extended trading. Should the stock sustain this rally on Friday, it would be the biggest one-day gain since 2012.

Amazon guided for first-quarter revenue of $112 billion and $117 billion, below the average estimate of $120 billion, according to Refinitiv. Operating profit in the fourth quarter will be in the range of $3 billion to $6 billion.

Fourth-quarter sales increased 9.4% to $137.4 billion. That’s Amazon’s first period of single-digit growth since 2017.

Even with the weaker sales number and disappointing guidance, Amazon is giving investors enough confidence that growth would recover. The market had a very different reaction to Facebook’s results on Wednesday, which sends the social media company’s stock to its worst-ever drop after its earnings and forecast missed estimates.

Amazon disclosed revenue from its fast-growing advertising business for the first time. Advertising services surged 32% year over year to $9.7 billion. Previously, Amazon also included advertising revenue in its “other” business segment.

“It had been the majority of other revenue,” Amazon CFO Brian Olsavsky said on a call with reporters. “We’re delighted with ad growth. It continues to drive value.”

While advertising has always been viewed as a tangential business for Amazon, it has had so much success attracting ad dollars that it’s third in the U.S. market, behind Google and Facebook. Google reported fourth-quarter ad revenue of $61.2 billion, while Facebook notched ad sales of $32.6 billion in the period.

Amazon’s significant profit gain on Rivian resulted from the electric vehicle maker’s IPO in November. Earnings per share, including the Rivian pay, were $27.75 for the quarter.

The Rivian IPO was priced at $78 a share, valuing $66.5 billion. The stock climbed past $172 at its peak but has fallen back to about $60. Shares of Rivian gained 3% in extended trading on Thursday. Amazon invested over $1.3 billion into Rivian owned 22.4% of the company’s Class A shares before the IPO.

Amazon is the last of the mega-cap tech companies to report in what’s been a rollercoaster earnings season. Netflix kicked it off in a disastrous fashion, with a miss on subscriber estimates. Microsoft, Apple, and Alphabet after by cruising past estimates, all before Facebook’s troubling numbers.

Amazon CEO Andy Jassy, who succeeded Jeff Bezos in the previous year, said the pandemic poses challenges. Facing a tight labor market, Amazon previous year hiked wages to an average of $18 an hour to lure workers and has made higher incentives, offering signing bonuses worth as much as $3,000 in some markets.

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