The Earnings Were Bad, Sure — But Were They That Bad?

It was an accelerated growth cycle, not an accelerating one

The Earnings Were Bad, Sure — But Were They That Bad?

It was an accelerated growth cycle, not an accelerating one

Amazon's stock price for the last 30 days, courtesy of Google.

(Why won't you let me add alt text to images, Revue? That… that is really stupid.)

So, as predicted, Amazon's growth is slowing down. (So is Shopify's, so is just about everybody's.) As I wrote in a tweet a week ago, for Amazon (and others who benefitted), the pandemic produced an accelerated growth cycle, but not an accelerating one. So what was maybe three years of growth in digital commerce happened in a single year, meaning this year's numbers are basically the same as last year's, maybe growing a little or contracting a little. Matt Day at Bloomberg calls this Peak Amazon, noting that Amazon's retail unit sales were essentially flat year-over-year.

You can imagine a universe where the pandemic (which is not actually in any way meaningfully over, although people are obviously no longer sheltering in place) triggered a death knell for brick-and-mortar businesses and a growth spiral for digitally-minded ones, producing double-digit growth year after year into the foreseeable future. We do not live in that universe.

That does not necessarily mean that digital commerce (in general, or at Amazon in particular) is now a mature business and this is its approximate level. Obviously, Amazon does not believe that and is not in the business of believing that. Hence Andy Jassy's annual letter about these still being the early days for Amazon's entire portfolio. Early days however does not mean easy days, and it's fair to say the days of easy growth are over. The entire stock market seems to be reflecting that realignment over the last week. Even commercial real estate and construction are getting ready for more bearish times, given that Amazon (among other companies) is less likely to be plowing record profits into even more shipping capacity.

The growing and profitable areas at Amazon remain AWS and its advertising business, the latter of which (as Corey Quinn persuasively argues) is a weird business.

should not exist

Anyways, let's say at the very least, Amazon's two properties still showing rapid growth in 2022 are all-digital plays in fast-growing markets where Amazon has a commanding position and a strong ability to charged both customers at the margins and those it's fully captured a premium for things that don't cost Amazon very much but matter materially to their customers' businesses a great deal.

What fundamentally distinguishes Amazon from a smaller and more execution-dependent digital company like Netflix or even Facebook is that it has lots of these customers, and can extend both the total revenue and marginal profit it ekes out from them a great deal. But its projections, too, have to be brought back to earth with a great deal of force.

This is, or should be, a good thing! Amazon has to work harder, be shrewder in its capital investments, do more to gain marginal customers (both end-users and vendors) and to regain customers' trust (ditto). But in the meantime, it means a great deal of paper wealth is correspondingly less valuable than it once was.

At Seeking Alpha, Philipp Stuelcken argues that (I'll paraphrase) Amazon is still in a long-term growth phase, that measuring year-over-year growth for any digital commerce company is going to be an unfair metric this quarter, and also that the retail store doesn't matter that much because AWS and advertising growth are still so good. The title of the post is "The Relevance of the E-Commerce Business Is Massively Overestimated."

My own sense is that this is going too far. E-commerce is still Amazon's bread and butter. Its advertising business would simply disintegrate if its marketplace no longer looks like a growth opportunity. The case for Amazon isn't "E-commerce doesn't matter" so much as "there's still plenty of room." There's room to grow globally, there's room to grow in grocery, in furniture and other larger-ticket items. Every other company is going to be facing the same headwinds, and none of them have already built Amazon's infrastructure to take them on. Nobody else can deliver you so many goods on the same day or the next day, for free, on demand. E-commerce is the font from which all of Amazon's waters flow. Early days, indeed.

I'm going to forego a full news roundup for the week, but just post a few links that interested me (and perhaps will interest you):

Amazon’s trying to solve problem of endless streaming content with IMDb games - The Verge

Amazon has made an app for the Fire TV that’s meant to help people decide what to watch, without an hour of scrolling through separate streaming services.

Television Is in a Showrunning Crisis

More and different kinds of people can now aspire to TV’s most important job—but streaming and COVID have set them up to fail.

A ‘Netflix for Sports’ Wagers on League Deals, Betting to Save Streaming Dreams — The Information

Early last year, it looked like DAZN might finally be turning a corner. The streaming company—bankrolled by Ukraine-born billionaire mogul Len Blavatnik—had survived the shutdown of live sports during the pandemic, a near-death experience for a company with the ambition of becoming a global ...

Roe v. Wade overturned: Amazon giving $4000 abortion benefit - Protocol

The country’s second-largest private employer plans to give hundreds of thousands of people access to a travel stipend to receive out-of-state abortions, which would help them avoid abortion bans if the Supreme Court overturns Roe v. Wade.

Amazon Kindles will soon support the ePub file format via Send to Kindle - The Verge

The Send to Kindle app should soon let you send ePub files directly to your Kindle, though they’ll still need to be converted by Amazon.

Amazon to get hearing that could overturn New York union vote | Reuters Inc's objections to a landmark union election at a company warehouse in New York City justify a hearing that could overturn the result, a U.S. National Labor Relations Board (NLRB) official said.

Christian Smalls on Twitter: "Just met the President lol he said I got him in trouble 😈 gooooooooooood @amazonlabor ✊🏽"

“Just met the President lol he said I got him in trouble 😈 gooooooooooood @amazonlabor ✊🏽”