Thread by @borrowed_ideas

1/12 $AMZN 4Q'21 Update

Market was in such a dour mood before the earnings that even an okay-ish quarter and guidance drove the stock +15% AH.

For the first time, international sales declined in any quarter YoY 😯

I know, I know tough comp. Here's my notes.

2/12 First, here's the breakdown of sales and operating income by NA, international, and AWS. Also, a breakdown by segment. For the first time, advertising revenue was disclosed.

3/12 2020 was extraordinary for $AMZN, so 2-yr/3-yr CAGR is more reflective of underlying health.

Q4: AMZN 2-yr CAGR is still at ~25%. AWS is accelerating growth. Ads 2-yr CAGR ~47%. Hard to complain.

AWS incremental operating margin mid-30s. But a wild swing for AMZN, ex-AWS.

4/12 Gain from Rivian investment was $11.8 Bn which inflated EPS numbers, but obviously one-off.

Prime price increases from $119 to $139.

"we think it's a much more valuable program today than it was in 2020, let alone 2018."

5/12 A little more than $4 Bn costs from inflationary pressure and productivity losses. Negative $1 Bn impact from fixed cost leverage in fulfilment.

"for most of 2020 and the first half of 2021 fulfillment network was running at close to 100% capacity"

6/12 AWS' run-rate now $71 Bn and growth is accelerating!

$1 Bn EBIT tailwind for AWS because of changes in useful life. While it seems to be lower quality earnings, AMZN thinks they had to work hard to to achieve it. It wasn't just an arbitrary change.

7/12 "AWS has 84 availability zones in 26 regions around the world right now. And just in terms of the forward-looking road map, we have announced to launch 24 more zones in 8 more regions, and those will be here in the next couple of years."

8/12 Ads was +33% in 4Q'21 (+66% in 4Q'20, but it had Prime Day in there)

"the sponsored products and brands, they make up the majority of ad revenue today"

3P units was 56%

9/12 Capex: ~40% is infrastructure (mostly AWS, so expect infra capex to continue)

~30% fulfillment capacity (mostly warehouses, capex will moderate here and likely to grow at tandem with biz)

~25% transportation (mostly AMZL, expect additional investment)

10/12 Outlook: 1Q'22 topline growth +3-8%. Expect tough comp to persist till 1H'22 and it gets easier in the latter half of the year.

11/12 Valuation: I was doing some quick sanity check on valuation. If you assume ~15x EV/EBIT terminal multiple, this is what you need to *believe* to generate 10% IRR.

NOT my forecast. The # of people who can forecast AMZN in 2030 is likely zero.

12/12 I'll cover $TRUP next week.

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