At Amazon.com Inc. (NASDAQ: AMZN), it is the dot-com part of the business that is in trouble. Threats to its e-commerce business and related operations, like Prime Video, were part of the larger half of Amazon and, based on revenue, still are. Its faster-growing, larger margin Amazon Web Services (AWS) may not be able to offset that. (Here are 11 reasons to avoid Amazon today.)
Amazon will announce earnings soon, and they will likely be more of the same. While e-commerce grew in the most recent quarter, it was not at the pace investors were used to. Amazon’s North American revenue rose year over year from $78.8 billion to $87.9 billion. Operating profits were $4.3 billion, which means North American margins were only 4.8%. In international e-commerce, revenue rose from $27.7 billion to $32.1 billion. The operation lost $95 million.
Amazon not only has e-commerce challenges from several growth rivals like Walmart.com, but its Prime Video operation has increasing competition from Netflix and other companies, including Disney+, Hulu, Apple TV+ and streaming services from other media companies. Most homes have three or four streaming services, but there is not room for all contenders. Another challenge is churn. Consumers leave a service like Prime Video to move to other services. Amazon then has to replace these customers. After growing market pressure, Amazon Prime laid off several hundred workers earlier this month.
AWS is the part of the company that impresses most investors, but even its growth has started to slow. It is the largest cloud computing company in the country but faces growing pressure from Microsoft, Google and several other large tech companies. Its revenue in the most recently reported quarter was $23.1 billion, up from $20.5 billion. Operating profit was a hefty $7 billion. However, that is insufficient to offset Amazon’s struggling e-commerce bottom line.
Amazon’s legacy business is struggling, and AWS cannot lift the entire company to fast growth and high margins.
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