News & Analysis

Amazon's halo effect has been eroded by a return to the high streets

Andrew Saks, Friday, 30 July 2021

It seems that Amazon can simply do no wrong whatsoever with regard to its almost single-handed revolutionization of retail shopping.

Whether the company's overtly monopolistic aspirations and overtones of criticism from various observers in positions of authority relating to the working conditions of many of its warehouse operatives who strive long and hard to ensure products are delivered directly to the door of hundreds of millions of people worldwide in a timely manner is a positive or negative, it is certain that Amazon is a stalwart.

There is a limit to its brilliance, however, as yesterday's announcement of the firm's second-quarter figures disappointed investors, as they missed Wall Street estimates of £82billion.

To add further to this disappointment, Amazon's executive board has predicted that its revenues would be even lower over the next three months, between £76billion and £80billion.

As a result, the stock market has reacted accordingly, and prices are down to a 5-day low, languishing at $3,599 per share.

Sentiment had already become considerably bearish in the run-up to these results, with a sharp drop on Tuesday morning from $3698 per share to $3590 per share, recovering slightly on Wednesday but then falling to new week-long lows after the second-quarter results were announced.

Interestingly, Amazon's data, web services and analytics division AWS, which has almost a data monopoly in the retail financial services sector globally, is performing well.

It has been clear for many months that 'big data' is more valuable than ever before, and if AWS is looked at on an isolated basis, its own results bear that out. Over the second quarter of this year, the unit brought in revenue of £10billion, which is an increase of a remarkable 37% over the previous quarter.

So many businesses have transferred away from physical infrastructure and are now fully reliant on cloud-based hosting for everything including all of their data. Server farms for most companies are a thing of the past and AWS now dominates across most business sectors as well as holds all of their data.

CEO Andy Jassy said yesterday "AWS has helped so many businesses and governments maintain business continuity, and we've seen AWS growth re-accelerate as more companies bring forward plans to transform their businesses and move to the cloud."

Perhaps one of the most interesting observations here is that the downward direction in Amazon's share price was largely caused by analysts focusing on the firm having not met expectations.

The reality is that the firm is still doing well. Amazon’s revenue grew by 27% year-on- year to $113.08 billion which is still very high, however it is being judged by the peak of last year in which the second quarter of 2020 was a period when sales skyrocketed 41% year-on-year.

Back then, there were far more consumers at home, and many have since shrugged off the whole isolation narrative and have resumed their lifestyle of two years ago.

Perhaps Amazon took a calculated estimate that it could get on board with G7 governments and encourage lockdowns and isolations but did not realize that so many people would take their freedoms back, which also means a return to the high street.

On a call with reporters, Amazon CFO Brian Olsavsky blamed tough annual comparisons to its business during the lockdowns. In mid-May of last year, Amazon saw growth rates jump to between 35% to 45%, he said, therefore bearing this theory out.

Perhaps 2020 was an exceptional year for Amazon, and the current figures are more realistic.

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