In a highly volatile earnings season in which Netflix, PayPal, and especially Meta Platforms (Facebook), got creamed, Amazon bucked the trend with solid numbers across the board and the stock jumped.
Davis Rea analyst J.C. O’Connell has done a deep dive on the e-commerce and web services giant and we’ve culled the hi-lights in a mostly bullet point, digestible form.
Amazon has spent billions in recent quarters in all aspects of their business.
Earnings are expected to trough in the current quarter and then those investments are expected to accelerate the business and the stock by the spring of this year.
It’s a move investors may want to get in front of.
Revenue growth was solid, but more muted then it has been in the past, and that’s largely due to the hugely difficult retail comparables (comps) they are now lapping due to COVID.
I would expect top line growth guidance and performance to continue to be somewhat tepid on the retail front for the coming year at least given how strong this has been through COVID.
My thinking here is that while the consumer remains strong, their lifestyles are less subsidized (particularly for low income earners) than they were in the earlier stages of the pandemic, and as we emerge into a more open society, we likely see spending shift into the services/travel sectors.
POINTS OF INTEREST:
Who Wants a Job?!
- Management noted on the call that fulfilment capacity is no longer their issue, and it is all centred around finding people to come to work.
- Last quarter, they had hoped to hire 150k warehouse/delivery workers to help with the peak season surge, but were only able to hire 140k in Q4.
AMZN was able to make it work from an operational standpoint by:
1. Hiring more third-party delivery contractors.
2. Paying more overtime.
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- Saw $4 billion in additional costs, as expected from prior guidance, related to supply chain issues and labour shortages.
- Struggled to hire on workers, and had to pay more overtime than expected, and used more third-party transportation services.
- Continue to see lots of disruption from leave of absences, either because they are sick or getting tested.
This means they are paying:
1. The sick persons time off.
2. The replacement workers wages + overtime pay.
See this as a big time cost driver/moderator as the pandemic ebbs and flows.
Advertising:
- AMZN sees no meaningful change in their ability to monetize advertising given the implementation of AAPLs new iOS privacy changes.
- More than 50% of revenues now come from areas outside of first-party retailing, Amazon Web Services (AWS) & Advertising playing a big role in this (~50% of that 50% is AWS + Ad Services).
Shopping:(third-party retailers 56% of total retail revenues)
- AMZN had it biggest ever Black Friday to Cyber Monday Holiday Shopping weekend.
- Apparel, beauty, home, and toys among the top-selling categories.
- During the holiday season, a third if which most are small and medium-sized businesses, achieved record worldwide sales in Amazon’s store.
- More than 130,000 third-party sellers worldwide surpassed $100,000 in sales on Amazon, and between Black Friday and Christmas, U.S.-based third-party sellers sold an average of 11,500 products per minute.
- Prime members are taking advantage of program benefits in record numbers. In 2021, members in the U.S. received more than six billion free deliveries, and over 200 million Prime members worldwide streamed shows and movies.
- Amazon partnered with Affirm to offer customers a buy now pay later option to pay on Amazon.
- Amazon announced that later this year, more than 80 million Venmo users in the U.S. will have the option to pay with PayPal-owned Venmo in Amazon’s online stores using their linked bank account or Venmo balance.
Amazon Prime:
- Increasing the price of Prime memberships in the U.S. for the first time since 2018.
- Monthly fee going from $12.99 to $14.99, and the annual membership from $119 to $139.
- For new Prime members, the price change will go into effect on February 18, 2022, and for current Prime members, the new price will apply after March 25, 2022, on the date of their next renewal.
- Availability of Free Same-Day Delivery in the U.S. has expanded from 48 metropolitan areas in 2018 to more than 90 today.
- Items available for Prime free shipping have increased over 50%, and members have saved billions of dollars shopping Prime Day.
- New program benefits include: Prescription savings and fast, free delivery from Amazon Pharmacy.
Entertainment:
- AMZN has 3x’d the number of Amazon originals since 2018.
- Big product slate in the works: The Boys, The Wheel of Time, Tom Clancy’s Jack Ryan, The Underground Railroad, Sound of Metal Coming 2 America, The Tomorrow War, and Being the Ricardos, Lord of the Rings: The Rings of Power
- Prime will be the new exclusive home of Thursday Night Football beginning in September an historic 11-year agreement with the NFL.
- Q4, full-year 2021 marked Prime Video’s strongest viewership for live sports globally.
Devices & Services: (Long story Short, cant beat AAPL on hardware, so focus is to integrate with other original equipment manufacturers (OEM) product like cars, planes, and space ships)
- AMZN and Stellantis announced a series of global, multi-year agreements that will introduce new connected experiences across a portfolio of 14 brands, including Chrysler, Dodge, Fiat, Jeep, and Peugeot.
- As part of the collaboration, Amazon will deliver software for Stellantis’ new digital cabin platform, STLA SmartCockpit, in millions of vehicles over the next decade.
- Has now sold more than 150 million Fire TV devices worldwide since launching the device in 2014.
- Introduced a new in-vehicle experience for passengers to use Alexa or on-screen touch controls to access more than 1 million TV episodes and movies on Fire TV in the U.S. Fire TV will also be built into BMW’s new 31-inch Theatre Screen for rear-seat passengers.
- Announced a collaboration with Lockheed Martin and Cisco that will send Alexa into space as a part of Artemis I, and will join the upcoming mission as a part of Callisto, a technology-demonstration payload embedded into NASA’s Orion spacecraft.
AWS: (Continuing to see “significant” customer momentum)
- AWS is now a $71B annual run rate business.
- Nasdaq shared its multi-year partnership to migrate its markets to AWS with the goal of becoming the world’s first fully enabled, cloud-based exchange. The move includes migrating Nasdaq’s matching engine, the core technology that market tick.
- Meta selected AWS as its long-term strategic cloud provider to accelerate artificial intelligence research and development.
CAPEX:
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- 40% of CapEx going into infrastructure, most of it feeding AWS, and AMZN is a large customer of that as they build network infrastructure for themselves. See this continuing to rise, adding capacity to new regions.
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- 30% is Fulfilment Capacity (warehouses). See this moderating, now will match growth of underlying businesses. Expansion.
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- 25% Transportation Capacity. See more investment coming in 2022.
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- 5% Offices, Stores, miscellaneous capital expenditures.
GUIDANCE:
Q1 full-year 2022:
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- MISS: Sees net sales $112.0 billion to $117.0 billion, estimate $120.51 billion (Bloomberg Consensus). Implies 3% – 8% year-over-year growth.
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- MISS: Sees operating income $3.0 billion to $6.0 billion, estimate $6.06 billion. Implies -66.2% – 32.3% year-over-year contraction.
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