The S&P 500 is up 5% this year. Amazon stock is higher by 13%. That is even better than the 10% gain at Microsoft, which is considered a hot mega-cap stock because of its foray into artificial intelligence (AI).

What happened? Primarily, Amazon.com Inc. (NASDAQ: AMZN) is firing on all cylinders. It has made tactical layoffs as well, cutting costs in areas it says are weak performers. Layoffs seem to be the rule this year among tech companies, rather than an exception. Amazon cut several hundred Prime Video and MGM employees earlier this year. (Eleven reasons to avoid Amazon today.)

Two Amazon Businesses

Amazon operates two primary businesses. The first is Amazon Web Services (AWS), the world’s leader in cloud computing. AWS has 31% of the market. Microsoft is in second place with 24%. In the most recent quarter, AWS had revenue of $24.2 billion, which was up from $21.4 billion in the same quarter the year before. Operating income was $7.2 billion, up from $5.2 billion.

At its heart, Amazon remains an e-commerce company, particularly in North America. In the most recent quarter, North American revenue was $105.5 billion, up from $93.4 billion a year ago. Operating income was $6.5 billion. That compares to a loss of $240 million in the previous year. The quarterly results were particularly important, since they include the fourth-quarter holiday shopping season.

Amazon International has consistently lost money, which begs the question of why it exists at all. In the final quarter of the year, it had revenue of $40.2 billion, up from $34.4 billion. It had an operating loss of $419 million, compared to a loss of $2.2 billion the prior year.

Amazon continues to have what many believe is the largest customer retention program in the industry. Prime offers customers free second-day delivery on many items, and Amazon Prime Video reaches about 200 million subscribers. That probably puts it second in streaming subscribers in the industry, behind only Netflix.

Why has Amazon stock done well this year? Probably because a mediocre bottom line in its core business got much better.

 

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