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Amazon Q1 2022 Implications

Job Chapter 19 verse 26 states, "I know that my redeemer lives, and that in the end he will stand on the earth."


As a Christian, I believe that Jesus Christ is Lord. He was alive as God on earth, and died through crucifixion and rose from the dead ascending into Heaven. The final chapter of the Bible, Revelation, speaks to His second coming to vanquish all evil across the earth forever. God's desire is for none to perish and all to have everlasting life. This offer is choice to any who are willing to accept it.


Investing tends to be a game of musical chairs where companies can all perform to varying degrees over time. This all sounds nice, but the reality is that there has always been, and there will always be winners and losers. It's definitely never easy, but I strive to identify who potential winners will be for aggressive growth opportunities. 2022 is shaping up to be a recessionary year, whether or not the macro indicators say so.


Topic

Today, Amazon, Inc. (AMZN) witnessed a 14% drop in its SP. While this was a pretty strong drop for AMZN on a daily basis, broader market pressures have been hitting the stock as well over the past month. I believe that the drop isn't as much about whether or not it was merited for AMZN explicitly (there's a clear answer to this), but more about what it means across the e-commerce landscape.


Key Takeaways



  • AMZN saw weakness for both 1P and 3P GMS (chart above)

  • This translated to impacts to Cash Flow margins (FCF burn currently at $30 billion) as inflationary cost pressures countered slowing growth (chart below)

  • Bright spots included AWS and Advertising Services growing 40% and 24% respectively

  • E-commerce plays globally were down in sympathy with AMZN - winners versus losers will begin to shake out


Why it Matters


It matters for two reasons, first AMZN was overvalued (just like aggressive growth plays) and second, 2022 is going to be the year of the emergence of winners versus losers. AMZN is no loser, but they are not going to outgrow companies like Coupang, Inc. (CPNG), MercadoLibre, Inc. (MELI), Sea Ltd. (SE) and Shopify, Inc. (SHOP) when it comes to annualized e-commerce performance globally. Weaker plays like Chewy, Inc. (CHWY) and Wayfair, Inc. (W) among others, will continue to struggle. Right now all are losers, but as 2022 continues to unfold, there will be no doubt who the winners are.


This dynamic isn't just at play for e-commerce, as a clear example of what I'm talking about here just occurred with Netflix, Inc. (NFLX) a former winner, versus Roku, Inc. (ROKU), the future winner. It really is a theme that will be occurring across all industries as legacy/Big Tech companies see exponentially slowing performance the coming years, as opposed to market leading innovators that will continue to outperform on Revenue and Cash Flow fronts, offering superior investor returns.




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