Here’s what makes Amazon a behemoth of the sum-of-all-parts business

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  • Amazon continues to grow even after 27 years in business

  • Amazon Web Services (AWS) is driving earnings, with revenue growing 33% to $19.75 billion in its latest quarter

  • More than 1.9 million third-party small business sellers account for 58% of sales on Amazon

Retail and tech app market giant Amazon.com Inc (NASDAQ:) has become a commerce juggernaut. Amazon is a paragon of the network effect because its ecosystem often encourages the same customer to use several services simultaneously without a second thought. Amazon is the #1 best shopping site, the 5th beauty destination among Gen-Zers, and the 2nd most trusted brand in America, according to Piper Sandler’s Generation Z and Morning Consult survey.

Brand awareness and service quality have become ingrained in the daily habits of consumers around the world. It’s hard to imagine that a company with over half a trillion dollars in annual sales started in a garage selling books online in 1994.

Amazon benefits from massive economies of scale and dominance that give them a halo effect as they enter new industries or introduce new product services. It has over 300 million active customers and over 100 million Amazon Prime members. Stocks have gone from single digits to over $3,000 per share over the past 27 years.

A 30-to-1 stock split made stocks more accessible to retail investors. Here’s a breakdown of the many moving parts of the Amazon juggernaut.

Pioneer of e-commerce and virtualization

It is a fact that Amazon is one of the original pioneers of e-commerce and at one time held a 49% market share in the e-commerce industry. They have become so massive that it is difficult to keep up with the innovations and the many services they provide.

Amazon segments its operations into three segments: North America, International, and Amazon Web Services (AWS). AWS is driving earnings as it continues to grow at a double-digit rate, responsible for most of the company’s earnings.

AWS enables businesses to operate in the cloud without the need for on-premises investments in hardware and software. This results in asset light trades for a fee. It’s comparable to eating a well-prepared meal in a restaurant for one price instead of manually buying all the ingredients, cooking them, serving them, and washing the dishes afterwards.

It’s cheaper, tastier and more effective. AWS also provides every type of business application under the sun. AWS is the market leader in virtualization platforms, with Microsoft’s Azure (NASDAQ: MSFT) running a distant second.

The Amazon effect

Amazon has a history of disrupting and dominating market categories once it decides to enter. The mere rumor of Amazon’s interest in entering a market or industry causes competitors’ stocks to plummet immediately. Much like how Walmart (NYSE:) is criticized for devastating small local retailers when they step into a strategic location for one of their massive supermarkets, Amazon has an even more disturbing reputation for trampling on incumbent businesses.

They’re seen as the big disruptor, evidenced by their Kindle, Fire TV and tablet e-readers, and Alexa and Echo smart speakers, to name a few. On the other hand, companies that do business with Amazon often see their stock prices skyrocket immediately. Such was the case on August 22, 2022, when shares of Peloton (NASDAQ:) soared 15% when they announced the launch of their Peloton store selling their fitness gear and equipment on Amazon.

Revenge of the Little Guys

However, the irony here is that unlike big warehouse clubs like Costco (NASDAQ:) or big retailers like Target (NYSE:) and Walmart, Amazon gets 58% of all sales through its third-party sellers. Like eBay (NASDAQ:) and Etsy (NASDAQ:), Amazon empowers the little guy.

Third-party sellers account for more than half of all units sold in Amazon stores. Third-party sellers include more than 1.9 million small and medium businesses on Amazon. This is largely due to its innovative Fulfillment By Amazon (FBA) program which will warehouse and ship products on behalf of third-party sellers for a fee.

Third-party sales are growing 52% per year, compared to 25% for first-party sales. Independent third-party sellers increased sales by 55% between April 25, 2020 and January 15, 2021. Big box stores are moms’ and dads’ nightmare, but Amazon is “America’s business nightmare”, according to Bloomberg.

If you can’t beat them or build them, then buy them

Their dominance and deep pockets have been criticized for stifling competition, and if they can’t build it, they’ll buy it. This is the case of Whole Foods Market for 13.7 billion dollars in 2017, Zappos shoes for 1.2 billion dollars in 2009, Kiva Systems for robotics for 775 million dollars in 2012, pharmacy services online PillPack for $753 million in 2018, video streaming platform Twitch for $970 million. in 2014.

Its 2022 acquisition of film and television production and distribution MGM Holdings for $8.5 billion in 2022 boosts its content library and Prime Video streaming service as it brings the streaming wars straight to competing Netflix-owned platforms (NASDAQ:), Walt Disney’s Disney+ (NYSE:), Peacock from Comcast and NBCUniversal, Paramount Global Class B (NASDAQ:) and Warner Brothers Discovery’s HBO Max platform.

Amazon announced the acquisition of consumer robot company iRobot (NASDAQ:NASDAQ:) in a $1.6 billion all-cash deal in August 2022. It has since been the subject of scrutiny from members of Congress, led by Sen. Elizabeth Warren (D-MA), with anti-competitive practices and privacy breach concerns.

Slowing down but still growing

Even 27 years after its launch, Amazon continues to grow. Their Q2 2022 earnings report saw revenue rise 7.2% year-over-year (YoY) to $121.23 billion from $119.16 billion according to analyst consensus estimates. . Although they reported a loss (-$0.20) per share, most of it was attributed to the $3.9 billion pretax valuation loss from its non-operating expense investment in the manufacturer. of Rivian electric trucks (NASDAQ: RIVN).

Operating profit was $3.317 billion. Revenue from its AWS segment grew 33% to $19.75 billion, with an improved operating margin of 29% from 28.3% a year ago. Their ad services business grew 18% year-over-year or 21% in constant currency to $8.76 billion. Amazon CEO Andy Jassy commented:

“Despite continued inflationary pressures on fuel, energy and transportation costs, we are making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network.

We’re also seeing accelerating revenue as we continue to make Prime even better for members, both by investing in faster shipping speeds and adding unique perks like free shipping from Grubhub for a year, a exclusive access to NFL Thursday Night Football games starting September 1. 15, and the release of the highly anticipated The Lord of the Rings: The Rings of Power series on September 2.

expects third-quarter 2022 revenue to be between $125 billion and $130 billion versus consensus analyst estimates of $126.58 billion, but expects operating profit to be between zero and $3.5 billion.

Weekly chart from Amazon Inc.

Here’s what the charts say

Using rifle paintings over a weekly and daily time frame provides an accurate view of the landscape for the AMZN stock. The weekly Rifles chart formed a breakdown at $128.39 Fibonacci level (fib). The weekly 5-period moving average (MA) at $122.22 fell through the weekly 200-period MA at $129.81 and recently fell through the 15-period MA at $125.13. Stocks fell below the weekly weak market structure (MSL) buy trigger at $115.19. The weekly stochastic peaked at the 80 band and fell back down.

The weekly lower Bollinger Bands (BB) lie at $92.11. The daily Rifle chart resumes a downtrend while the daily 5-period MA flattens to $115.07 while the 15-period MA continues lower to $120.90. The daily BB lower sits at $105.14. The daily stochastic has crossed at the 10 band but is stalling on the make or break as the moving averages could form an inverse puppy distribution, or the stochastic may rise with a mini puppy. Attractive pullback levels are found at $101.50, $97.61, $92.97, $89.99, $85.58 and $80.82.

Challenges behind Prime Day 2

Amazon faces challenges from all sides of its business, not only from its competitors, but also from the Macroeconomic environment. So far he has repelled all comers. However, it is not immune to shifts in consumer sentiment. The Company has experienced a huge increase during the pandemicadvancing e-commerce adoption by a decade, according to some estimates.

Amazon gained 200,000 new third-party sellers in 2020, up 45%, driven primarily by the pandemic. As a global retailer, it is not immune to currency pressures, which is why it also includes constant currency performance figures in its earnings report. The impact of high inflation, a strong american dollar, and the tightening of consumer consumption habits will inevitably affect Amazon’s business. This could be the driving force behind the unprecedented decision to launch a second Amazon Prime Day called Prime Early Access from October 11-12, 2022.

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