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04 May 2021

Amazon ‘Results Day’

During the pandemic, with lockdown restrictions and quarantine forcing people globally to reside in their homes over the past year, the online retail market has grown rapidly. Amazon is essentially the blueprint for scaling the e-commerce business model, and once again pulls through with some outstanding results showing the rest of the online retailers how market dominance is achieved. The pandemic momentum soars on, with sales up 44% year over year to US$108.5bn. The mammoth sales figure was even higher than expectations to the tune of 3.8%, which is commendable, but where Amazon really hit it out of the park was their profit figure, 65.5% higher than analyst estimates.

Amazon does not see the growth of their sales faltering soon and has implied in their guidance that the company is confident that it will continue for the second quarter. Amazon intends on running their two-day annual discount, titled ‘Prime Day’, in June. The company expects Prime day to be well timed for the Summer, hopefully adding another boost to sales. Aside from the company’s online retail division, Amazon Web Services which facilitates cloud computing and advertising has also achieved great success in the quarter and generated sales of US$13.5bn, a 32% increase year over year. Although Amazon does not directly disclose its advertising sales, it can be deduced that they grew by 77% year over year and equalled US$6.9bn.

Is there anything Amazon cannot do? With there now being over 200 million Prime subscribers, which offers more flexible delivery terms, movie and television series streaming services and exclusive discounts, it is difficult to see an arena in which Amazon would underperform. As stated by Bezos, “over 175 million of these Prime subscribers have streamed shows and movies in the past year with the streaming hours up more than 70% year over year,”. Having made the arena comment, the company’s physical store divisions experienced a 16% decline in sales, which includes Whole Foods Market, Amazon Books. Luckily for the company, it is only a relatively small revenue driver with US$3.9bn in sales.

The company’s international sales grew by 60% which is a substantial increase, and although not weak, the 40% sales growth generated from the North American region was slightly overshadowed. With all this expansion, an increasing level of stress is placed on the operational workforce of Amazon and the company has come under scrutiny because of this. The company’s solution to this is via more recruitment and training, but more notably the firm intends on spending more than US$1bn on raising wages for over 500,000 of its US operations employees. The plan for Bezos to step down in Q3 2021 has been public knowledge for some time now, but with that time approaching it came as a surprise that no further disclosure was made on the topic. However, we know that the CEO position will be filled by the very capable hands of Andy Jassy, the current CEO of Amazon Web Services.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Amazon ‘Results Day’
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