Amazon (AMZN -0.32%) has been a winning stock for most of its public existence, save for the normal ebbs and flows of any asset. The company tends to hit its marks, and it regularly finds new businesses to dominate, generating new revenue streams. Right now, it's focusing on generative artificial intelligence (AI), which is a high-margin business that should increase the top and bottom lines.
That's important, because if you take a look at its financial reports and its stock price, you'll notice that Amazon's stock price closely tracks the changes in its net income.
Operating income vs. net income
Amazon's management likes to focus on operating income, and it highlights that metric at the beginning of each of its quarterly reports. This is because operating income factors out tax-related expenses and other items that don't have a strong bearing on the company's operations.
That could be the fiscally responsible thing to do. In fact, Warren Buffett, the legend himself, who also has a stake in Amazon, has called the net income metric "worse than useless." Instead, he focuses on operating income, which he agrees tells a more complete picture of a company's financial situation.
However, not every investor is as wise as Buffett, and in any case, the merits of focusing on operating income vs. net income can be debated. The choice also impacts valuation metrics like the P/E ratio, so whether or not net income is the better bottom-line metric to follow, it matters to the market. And Amazon's stock price tracks net income much more closely than revenue or operating income.
Net income is included later on in the financial statements, but investors should find it and take notice of it. In the third quarter, net income increased from $9.9 billion in 2023 to $15.3 billion in 2024. It shouldn't be viewed on its own, but as a piece of the whole picture.
