Amazon shares have fallen by half in the last year. This compares to a 33% drop in the Nasdaq. While its cloud business remains the largest and most profitable in the US, its e-commerce operations are in shambles. The stock’s short-term direction will be determined by how well Amazon.com did over the holiday season, which is the time when this part of Amazon has the most revenue.
Amazon Web Services (AWS) had revenue of $20.6 billion in the third quarter and an operating income of $5.4 billion. That puts it well ahead of rivals Microsoft, Google, Saleforce.com, and Oracle. The number of corporations that will move to the cloud will continue. Data that is stored in the cloud is more secure. Cloud storage operations like AWS are usually less expensive than when companies create small “clouds” for their storage operations.
Amazon’s e-commerce business underperformed last quarter. In North America, it lost $412 million on revenue of $78.8 billion. Its international e-commerce business lost $2.5 billion on $27.7 billion.
Amazon expects fourth-quarter revenue growth of as little as 2% year over year. It may post no operating income. Its management blamed …COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand…” However, the real villain is expenses. New CEO Andy Jassy’s ability to keep costs down has been wanting. He should reasonably feel that his job is on the line.
Amazon aggressively expanded during the worst of the pandemic, as people had more and more of the goods they used delivered instead of bought in stores. As that trend has dropped, Amazon’s cost base has fallen less quickly. The result is a drop in margins.
Amazon Prime Video also faces hard challenges. It was arguably the largest streaming service along with Netflix. Aggressive challenges from Disney, the former Warner properties, and Apple have made the likelihood it can hold its position and profitability less certain.
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Amazon’s stock may recover some if it has strong holiday sales, but it won’t double back to previous highs.
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