Amazon (NASDAQ:AMZN) is not only the world’s largest e-commerce company, but it’s also a great way to play the cloud computing space. In fact, cloud services will likely be Amazon’s biggest profit driver in 2022. Amazon just reported record-setting quarterly results. And AMZN stock is up nearly 10% since I predicted last month that it could deliver a 30% gain for investors in 2022.
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Maybe you’re not sold on AMZN stock yet. Perhaps you think its relative weakness over the past year will continue. Or maybe you think that without founder Jeff Bezos in the CEO seat, the company and its shares are destined for mediocrity.
But you’d be wrong.
In addition to being an e-commerce and cloud computing powerhouse, it turns out Amazon is also one of the biggest and best advertising companies on the planet. The company’s fourth-quarter earnings report has the numbers to prove it.
Amazon’s Advertising Prowess
Amazon’s fourth-quarter earnings report, released on Feb. 3, was notable for a number of reasons. And we’ll get into those in a moment. But the first thing I want to look at is the company’s revenue from its advertising business.
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Amazon makes money from advertisers by selling targeted ad space on its massive e-commerce platform. If you’ve ever shopped on Amazon, you’ve surely seen the ads targeted specifically to you, based on your browsing history and your online shopping activity.
Prior to the latest earnings release, Amazon reported advertising revenue as part of its “Other” category. But in the most recent quarterly report, it broke out advertising in its own category, which highlights its importance as a growth driver.
In Q4, Amazon’s advertising services business grew 32% from a year ago, reaching $9.7 billion in revenue. For the full year, advertising generated $31.2 billion in revenue.
That puts Amazon in third place in the U.S. market, trailing only Alphabet’s (NASDAQ:GOOG, GOOGL) Google and Meta Platforms’ (NASDAQ:FB) Facebook. Google’s Q4 ad revenue was $61.2 billion, while Facebook’s was $32.6 billion.
By comparison, Amazon’s $9.7 billion in quarterly advertising revenue may seem small. But consider that Twitter (NYSE:TWTR), a company that makes nearly all of its money from advertising, generated $4.5 billion in annual advertising revenue during 2021.
Amazon Delivers Impressive Q4 Earnings
As I mentioned earlier, advertising was not the only bright spot in Amazon’s latest results.
Amazon commands roughly 40% of the e-commerce market. However, growth has slowed in that segment as the company continues to run up against pandemic-related comparisons. Fourth-quarter revenue from e-commerce was up just 9% in the United States and 3% internationally from a year ago.
But no matter. Amazon is still making a ton of money and experiencing plenty of growth in other divisions. In addition to its growth in advertising services, Amazon’s AWS cloud division showed operating income growth of 49% from a year ago.
Amazon also got a nice windfall from its investment in electric vehicle maker Rivian Automotive (NASDAQ:RIVN). Amazon owned around 20% of Rivian before the company’s initial public offering last year. The Rivan investment pushed Amazon’s fourth-quarter earnings per share to an eye-popping $27.75.
As my InvetorPlace colleague Shrey Dua points out, even when you take Rivian out of the equation, Amazon still posted EPS of around $8, well above the $3.77 analysts were expecting.
Finally, as part of its earnings report, Amazon announced it is increasing the annual cost of its Prime membership from $119 to $139. It’s the first price increase for Amazon Prime since 2018.
The Bottom Line on AMZN Stock
For anyone concerned about Amazon’s slowing e-commerce growth, news of the increased Prime membership cost is a welcome development. The additional revenue should also help offset increased labor costs and challenges from inflation and snarled supply chains.
The company is projecting first-quarter revenue of between $112 billion and $117 billion, which is below analysts’ average estimate of $120 billion. But Amazon has a much better chance of showing strong growth numbers now that it isn’t battling pandemic-inflated comparisons from 2020.
I’m still betting on AMZN stock to have a much better 2022. At the time of this writing, analysts’ 12-month average price target is about $4,193, according to TipRanks. That’s a projected upside of 34%. Sounds about right to me.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.
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