Amazon, irrationally trapped by the technology crisis

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Amazon, irrationally trapped by the technology crisis

You must demonstrate that your retail business can be profitable, made more difficult by the looming recession

Amazon is between two fires. Following dismal results from Facebook owner Meta Platforms on Wednesday, the $1 trillion online retailer took a major hit after disclosing its own third-quarter results. A warning about the upcoming holiday season wiped $200 billion off the company’s market value, despite strong sales results in North America and the cloud business. Yet when industry investors recalibrate what’s important, even successful companies suffer.

The behemoth now headed by Andy Jassy posted solid revenue growth in the three months ending September 30, largely thanks to Amazon Web Services (AWS) and retail sales in the United States and neighboring countries. Mail delivery business revenue rose to $107 billion, up 13% from a year earlier. While international sales were down, they were up by more than a fifth in North America. For its part, the data storage business grew by 27%, to 21,000 million dollars.

However, retailing is not always profitable. In the first nine months of this year, operating losses of more than $8 billion took almost half of the operating profit generated by AWS.

The gloomy economic outlook, despite 2.6% quarterly growth in US GDP announced on Thursday, suggests consumer jitters could do more damage. The business research body Conference Board forecasts a 96% chance of a recession. Amazon said fourth-quarter operating income could be as low as zero, along with net sales projections that fell below what analysts expected, according to estimates compiled by Refinitiv. Exchange rates are partly to blame.

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Sales in North America account for nearly 60% of Amazon’s revenue. A shrinking pie for online book and electronics sales doesn’t sound great, even though the company’s ethos is to focus on the long term without obsessing over the bottom line. Unlike Meta, Amazon falls victim to broader trends, including concern about the tech sector. He doesn’t deserve the same punishment.

However, fund managers are moving the goalposts. After years of being infatuated with growth, they are now focused on results. For Amazon, that means proving that its retail business can be profitable. With the worsening of the expectations of its main client – ​​the American buyers – the task will be more and more difficult.