Amazon.com (NASDAQ: AMZN) It is a fantastic success story in the world of business and technology. The action has exploded in the past decade. Revenue has increased from $ 34 billion in 2010 to a whopping $ 281 billion in 2019.
Founder and CEO Jeff Bezos continues to run the company with the mindset that it’s always Day 1. That’s his way of describing a corporate culture characterized by “customer obsession, a skeptical view of reps, enthusiastic adoption of trends and speed of decision making “. In his 2016 letter to shareholders, Bezos gave investors a glimpse of what Day 2 is: stasis, followed by irrelevance, decline, and ultimately death.
Despite the fact that Bezos continues to remind everyone that Amazon is still on Day 1, the gigantic corporation will one day arrive at the dreaded Day 2. The company’s numbers since its IPO in May 1997 have been surprising, but its growth it will eventually slow down simply due to its large size. Let’s take a look at the challenges Amazon faces in each of its top three businesses.
Image source: Amazon.
Electronic commerce
Not surprisingly, the coronavirus pandemic has altered the shopping landscape by accelerating e-commerce sales and slowing sales for traditional retailers. Both trends substantially benefit Amazon. According to eMarketer research, Amazon will increase its share of the US e-commerce market by 1% to 38% this year.
However, the pandemic has forced competitors to reinforce their own offerings. In the first quarter of 2020, objective saw its comparable digital sales soar more than 140% compared to the prior year period. WalmartE-commerce sales in the same period increased 74%. Walmart also recently announced a new partnership that will allow 1,200 Shopify sellers on their Marketplace platform later this year. Also, in May, Facebook launched Facebook Shops, its own merchant platform that helps struggling small businesses adjust to an online world. There is no doubt that Amazon still has the lead in e-commerce, but others are investing heavily for a piece of the pie.
In addition to competition, the company also faces the risk of antitrust charges. Charged with using third-party sales data to benefit its own private label offerings, Amazon could lose the trust of sellers who now have growing online sales channels.
principal
In the fourth quarter of 2020, Amazon had some 112 million Prime members paid in the US alone, but consider the fact that there are 120 million households in the United States and that most households do not need multiple Prime accounts. . It is clear that the growth opportunity for Prime at the national level is very limited.
However, Amazon has experienced rapid growth in Brazil since the launch of Prime in September 2019. The company will have to continue to tap international markets to expand its subscription business. This is a difficult task, with massive established competition and different purchasing behaviors present in the fastest growing regions of the world.
AWS
Amazon Web Services’ revenue growth has slowed in recent years, primarily due to strong offerings from other tech giants. While revenue increased nearly 70% in 2015, growth almost halved in 2019, as AWS sales increased just 36.5% compared to 2018. Microsoft‘Azure is a viable force and now owns 18% of the market. Larger companies may prefer to do business with it, as they have been buying Windows and Office software for years.
Amazon’s various business units collect large amounts of data, support and improve operations across the board. Potential AWS customers may be on the lookout for antitrust concerns surrounding Amazon’s e-commerce business and choose not to release more data to the company by resorting to a competitive service.
And finally, rumors of a possible AWS spinoff should be paramount to Amazon stock owners. AWS ‘high-margin, light-capital, and market-leading attributes greatly contribute to Amazon’s overall valuation. A separation from business would certainly change the interest of investors.
Day 2
For a company with a market capitalization of $ 1.4 trillion, the recent growth has been absolutely impressive. With new digital partnerships now posing a serious threat to e-commerce, limited expansion opportunities for Prime in the US, and a high competitive landscape in cloud computing, we are already seeing signs that growth is slowing. . Investors should moderate expectations in the future, but a PE index close to 140 has not been able to drive them away. We could still be on Day 1 for a little while longer, but sorry, Mr. Bezos. Day 2 is coming.
