Amazon’s latest results amazed Wall Street, and not in a good way. Instead of the expected $5.3bn operating income, the company only made $3.7bn, and revenue decelerated markedly.
A year ago, revenues were growing at 44%. This time round, they saw growth of just 7%. That’s hardly enough to keep pace with inflation. It’s also the slowest growth Amazon has seen since 2001.
Worse still, Amazon’s commitment to double its fulfillment network over 2 years, in order to support same-day delivery, ended up being too aggressive. That meant costs were significantly higher, demolishing operating margins in the retail business. Despite a better than expected performance from the web services business, that meant results were disappointing.
Further bad news came with a big write-down on Amazon’s investment in electric truck maker Rivian. After this, Amazon made a net loss for the quarter.
The share price headed down 14% the next day as Wall Street turned negative on the stock. So, how bad are these results?
It’s clear that Amazon mistimed its big investment. It has way too much space in logistics right now, as well as too many employees, and it’s going to have to fill up that capacity somehow. But the huge boost to sales during the pandemic hasn’t continued.
That’s been confirmed by other e-commerce vendors. Shopify, which supplies a large slice of the e-commerce market with trading capability, also had poor results. Meanwhile, Etsy and eBay had good results, but warned that their markets are cooling off and revenue growth won’t continue at the same rate in future. So that’s bad news for e-commerce in general.
On the other hand there are two factors which suggest this isn’t a disaster for Amazon. The first quarter is never a great quarter for retailers – it’s the fourth quarter which really matters, with Thanksgiving and the holiday season. And as with companies like Zoom and Docusign, Amazon had fantastic strength during the pandemic, as bricks and mortar competitors suffered, so the comparisons were always going to be bad.
How will this affect FBA sellers? The results show that sales are hard to get right now. Consumers are suffering from the increase in inflation, and they’re trying to cut costs. That makes discounts more valuable than ever as a way of attracting business, whether on Amazon directly or using Vipon to attract cost-conscious consumers.
Amazon is also left with low profitability in its distribution chain thanks to the big expansion. It’s probably looking to cut costs – but it might not be surprising if it raises storage prices for FBA sellers, or even referral fees.
But no, this isn’t the end of Amazon. It’s just a slowdown – you don’t need to worry about the viability of the business.
