A month has gone by since the last earnings report for Amazon (AMZN Quick QuoteAMZN - Free Report) . Shares have lost about 9.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Amazon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Amazon's Q4 Earnings & Revenues Beat Estimates

Amazon.com reported fourth-quarter 2020 earnings of $14.09 per share, beating the Zacks Consensus Estimate by 99.8%. The bottom line also improved 117.8% from the year-ago quarter and 13.9% from the previous quarter.

Net sales of $125.6 billion comfortably surpassed the Zacks Consensus Estimate of $120.4 billion and exceeded management’s guidance of $112-$121 billion. Further, the figure increased 44% on a year-over-year basis and 30.6% sequentially.

North America revenues (60% of sales) advanced 40.3% from the year-ago quarter to $75.3billion. International revenues (30% of sales) climbed 57.3% year over year to $37.5 billion. Amazon Web Services (“AWS”) revenues (10% of sales) rose 28% year over year to $12.7 billion.

Robust performance delivered by Amazon during the holiday season drove top-line growth. Notably, it sold more than a billion products under the categories of toys, electronics, home, fashion, beauty and personal care across the world during the holiday shopping period.

Moreover, the coronavirus pandemic-induced continuous surge in online shopping contributed well. We note that the company’s online store sales rose46% from the prior-year quarter.

Additionally, strengthening relationships with third-party sellers remained a major positive. In the fourth quarter, sales generated by these sellers rose 57% on a year-over-year basis.

Further, strong momentum across Prime members remained a tailwind. The company’s subscription services delivered robust performance during the reported quarter. Sales from these services went up 35% from the prior-year quarter.

Furthermore, solid AWS momentum and strengthening smart devices offerings continued to benefit the company’s fourth-quarter performance.

The company’s strong global presence, growing Prime momentum, expanding data center network and increasing number of AWS regions, improving Alexa skills, expanding smart devices portfolio, and growing efforts toward gaining strong traction among small and medium businesses are likely to drive its near-term financial performance.

With the release of fourth-quarter results, the company also announced the transition in the role of Jeff Bezos to the position of Executive Chair. Notably, Jeff Bezoz will be stepping down from his current CEO role in third-quarter 2021 and Andy Jassy will become the new CEO.

Retail & Prime Momentum

Amazon’s aggressive retail strategies continued to benefit its fourth-quarter results. Expanding the fulfillment network and ultrafast delivery services contributed well.

The opening of Amazon Fresh grocery stores in Irvine, CA, Schaumburg, IL, North Hollywood, CA, Ladera Heights, CA, Naperville, IL, Northridge, CA and Whittier, CA, bolstered the company’s physical retail presence as well as grocery retail footprints.

Further, the unveiling of the online store for prescription medicines namely Amazon Pharmacy in integration with its PillPack buyout remained noteworthy. The store offers afree two-day delivery service to Prime members.

Additionally, the company boosted its fashion retail efforts by introducing a service —Made for You, which allows shoppers to create a customized T-shirt according to their exact measurements.

Further, a huge success in the company’s Great Indian Festival event contributed well. Notably, it witnessed strong momentum across small and medium businesses. Customers made purchases from above 110,000 such sellers during the event.

Apart from this, solid momentum across Prime Video remained a major tailwind in the reported quarter. Expanding original content and overall content portfolio on Prime Video continued to accelerate the Prime engagement further.

We note that Prime Video premiered new and returning seasons ofits original series and specials namely What the Constitution Means to Me, The Pack, Small Axe, Utopia, The Wilds, The Expanse, Yearly Departed, and the final season of Vikingsduring the reported quarter.

Also, the company bolstered its original movie content library with Borat Subsequent Moviefilm, Uncle Frank, Sylvie’s Love, Sound of Metal and I’m Your Woman.

Further, it strengthened its country-wise Amazon Originals content portfolio by streaming The Challenge: ETA, BILD.Macht.Deutschland?, FERRO, El Cid, Binge Reloaded, Truth Seekers, The Bachelorette, Mirzapur, Locaspor el Cambio, The Grand Tour: A Massive Hunt, and All or Nothing: Tottenham Hotspur.

Additionally, Amazon witnessed strongest growth in its viewership forlive sports streaming in the reported quarter. Live streaming of San Francisco 49ers vs. Arizona Cardinals game, Premier League football, NFL regular season game, and Autumn Nations Cup tournament helped the company in attracting Prime members.

Expanding AWS Portfolio: A Key Catalyst

AWS, which witnessed solid growth in the topline, continued to gain strong customer momentum in the coronavirus-hit fourth quarter, courtesy of its highly reliable services portfolio.

During the reported quarter, AWS rolled out a cloud-based healthcare service called Amazon HealthLake. Further, it unveiled Amazon DevOps Guru, which improves application availability by using ML services.

Additionally, the company rolled out five industrial ML services namely, Amazon Monitron, Amazon Lookout for Equipment, the AWS Panorama Appliance, the AWS Panorama SDK, and Amazon Lookout for Vision.

Further, AWS made Amazon Managed Workflows for Apache Airflow generally available. Furthermore, the company announced the general availability of AWS Network Firewall, which is a new service, well-equipped to protect against common network threats.

Also, AWS unveiled Mac instancesfor Amazon Elastic Compute Cloud (Amazon EC2). Also, it introduced nine capabilities for Amazon SageMaker, five new capabilities for Amazon Connect and four new container services.

Furthermore, the company rolled out Amazon QuickSight Q, AWS Glue Elastic Views and Aurora Serverless v2 among others.

On the heels of expanding services portfolio, AWS experienced strong growth in its clientele with the addition of Thomson Reuters, Metro Goldwyn Mayer, ViacomCBS, Boom Supersonic, MercadoLibre, Zalando, Nationwide, Twitter, Star Alliance, Standard Chartered Bank, Arm Holdings, Zoom and Itau Unibanco, to name a few.

Also, extended relationships with Carrier Global and BlackBerry remained positives.

Alexa, Smart Devices Offering & Self-Driving Space

Amazon continued to enhance the skills and features of Alexa in the reported quarter. Introduction of multilingual feature, new Alexa Routines on Fire TV, Alexa Custom Assistant, and a new capability that helps in making Alexa more natural remained positives.

Further, Amazon made Ring’s new Mailbox Sensor generally available to customers. It also rolled out Customizable Motion Zones for all battery-powered Ring Video Doorbells and Security Cameras.

Additionally, the company’s growing momentum across Fire TV, whose monthly active user base has exceeded the mark of 50 million, remained a tailwind. Also, winning content deals with streaming providers such as HBO Max, discovery+, and Xfinity in the U.S., Disney+ in Mexico and Brazil, NOW TV in the UK and CANAL+ in France contributed well.

Apart from these, Amazon gained strong traction in the autonomous driving space with the first look of Zoox’s fully functional, electric, autonomous vehicle.

Quarter in Detail

Product sales (56.6% of sales) increased 40.6% year over year to $71.1 billion. Service sales (43.4% of sales) rose 47.7% from the year-ago quarter to $54.5 billion.

Operating expenses were $118.7 billion, up 42% from the year-ago quarter. As a percentage of revenues, the figure contracted 110 bps on a year-over-year basis to 94.5%.

Cost of sales, fulfillment, technology & content, marketing and general & administrative expenses increased 46.9%, 51.5%, 23.7%, 19.9% and 39.4% to $79.3 billion, $18.5 billion, $12.05 billion, $7.4 billion and $1.9 billion, respectively, on a year-over-year basis.

Other operating income was $496 million in the reported quarter compared to expenses of $65 million in the year-ago quarter.

Overall operating income increased 77.2% from the year-ago quarter to $6.9 billion. Further, the operating margin expanded 110 bps from the year-ago quarter to 5.5%.

Operating income for AWS was $3.6 billion, up 37.3% year over year. Further, the same for North America improved 55.1% from the prior-year quarter to $2.9 billion.

Further, the International segment reported an operating income of $363 million against a loss of $617 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash and cash equivalents were $42.1 billion compared with $29.9 billion as of Sep 30, 2020. Further, marketable securities totaled $42.3 billion at the end of the fourth quarter, up from $38.5 billion at the end of the third quarter.

Long-term debt was $31.8 billion in the reported quarter compared with $32.9 billion in the previous quarter.

Further, the company generated $30.4 billion of cash from operation in the fourth quarter, which was up from $11.9 billion in the prior quarter.

On a trailing twelve month basis, free cash flow came in at $31.02 billion in the reported quarter, up from $29.5 million in the prior quarter.

Guidance

For first-quarter 2021, Amazon expects net sales between $100 billion and $106 billion. The figure is anticipated to improve 33-40% on a year-over-year basis.

Management projects a favorable foreign exchange impact of 300 bps.

Proceeds from operational activities are likely to range from operating income of $3 billion to $6.5 billion.

This guidance is inclusive of more than $2 billion costs related to COVID-19.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 12.92% due to these changes.

VGM Scores

Currently, Amazon has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Amazon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.