Bezos flew into the sky, but Amazon’s performance fell to the ground

After the market on July 29, Amazon released its second-quarter 2021 financial report. This is also the first time Amazon has announced its results after Bezos stepped down in June.

【Key Points】

1. Amazon’s total revenue in the second quarter was US$113.08 billion, a year-on-year increase of 27% (excluding the impact of exchange rate changes, a year-on-year increase of 24%). The revenue level is lower than the previously expected 115.2 billion US dollars of analysts.

2. Net profit was 7.778 billion U.S. dollars, an increase of 48% compared with 5.243 billion U.S. dollars in the same period last year, and lower than analysts’ expectations of 8.574 billion U.S. dollars.

3. Amazon gives guidance for the next quarter, predicting that the third-quarter revenue will be between 106 billion and 112 billion US dollars, which is also lower than analysts’ expectations of 119.2 billion US dollars.

After the market on July 29, Amazon released its second-quarter 2021 financial report. This is also the first time Amazon has announced its results after Bezos stepped down in June. After leaving office, Bezos boarded a spacecraft made by the “Blue Origin” company he invested in on July 20 for space travel.

However, Amazon’s first earnings report after leaving Bezos was really surprising. Not only did its revenue and net profit fall short of expectations, but even the guidance for the next quarter was also much lower than expected. Therefore, the stock market reacted quickly to this performance, with an after-hours drop of 7.44%.

The revenue of the e-commerce sector increased by 16%, and Amazon’s aura is gradually fading

In the second quarter of this year, Amazon’s total revenue increased by 27% year on year. Excluding the impact of exchange rate changes, the year-on-year growth rate was 24%. Amazon’s size is not easy to maintain double-digit growth, but this data is still lower than market expectations.

In the past, the e-commerce sector that has driven revenue soared, the performance in this quarter can be described as unsatisfactory: In the second quarter, Amazon e-commerce net sales were 53.16 billion U.S. dollars, a year-on-year increase of 16%; third-party seller services net sales It was US$25.09 billion, an increase of 38% year-on-year. Net sales of subscription services were US$7.917 billion, a year-on-year increase of 32%; net sales from physical stores were US$4.198 billion, a year-on-year increase of 11%.

Compared with the 48% business growth rate of the same period last year, the 16% growth rate of the e-commerce sector is really pitiful. The epidemic has ignited Amazon to a certain extent, and the aura of Amazon is gradually fading after the epidemic. According to Amazon CFO Brian T. Osavsky, Amazon’s growth rate was at 20% before the epidemic, and the epidemic has promoted the frequency and amount of online shopping for users. However, with the introduction of the vaccine and the lifting of the closure, people have resumed their normal lives, and Amazon’s income has naturally returned to before the epidemic.

Amazon now faces daunting challenges. Although revenue surged 44% in the first quarter of this year, revenue growth fell to 27% from April to June. Moreover, even this 27% is the figure after water injection. After all, previous PrimeDay events were held in July (the third quarter), but Amazon moved the membership day promotion to June this year. According to Morgan Stanley’s forecast, the PrimeDay event directly brought more than 8 billion in revenue to Amazon, and the impact is evident. It is conceivable that if this part of the revenue is not moved to the second quarter to add some water, Amazon’s financial report may look even worse.

The guidance for the next quarter is even more surprising. Amazon said that revenue growth in the third quarter may only be 10–16%, the lowest in history. The revenue guidance is between 106 billion U.S. dollars and 112 billion U.S. dollars, which is far below the market consensus of 119.2 billion U.S. dollars. Considering the pain in the late stage of the epidemic and the second-quarter earnings report of Amazon secretly injecting water, this is not difficult to understand.

Demand is still strong, can AWS get Amazon back on track?

The only dazzling part of this financial report may be other businesses and cloud services: net sales of other businesses were US$7.914 billion, an increase of 87% year on year. This part of the business mainly comes from advertising, but it accounts for a very large proportion of Amazon’s total revenue. Low; AWS cloud service net sales were US$14.81 billion, a year-on-year increase of 37%.

The performance of cloud services is actually not surprising. After all, the new CEO started with AWS. The new CEO Andy Jassy is a veteran Amazon employee. He joined Amazon after graduating from Harvard Business School in 1997. In 2003, Jassy, ​​as one of AWS’s principals, began to take the lead in charge of Amazon’s AWS business. Initially, the AWS business was abandoned by enterprise software giants such as Oracle. When AWS began to launch services in 2006, the main service targets were also smaller technology companies and development teams. Amazon’s cloud business is developing rapidly under the leadership of Jassy.

Companies such as the well-known American start-ups Pinterest, Slack, Lyft and Snowflake, which we know well, cannot do without Amazon behind their growth, and Amazon’s AWS revenue growth also benefits from the development of these companies. In the entire industry, Amazon has also established an unsurpassed lead. Although Microsoft and Google have successively increased their investment in the cloud business, it is still difficult to catch up with Amazon. According to data from Synergy Research, as of mid-2020, Amazon has firmly controlled 33% of the global cloud infrastructure service market, followed by Microsoft and Google with 18% and 9% market shares, respectively.

In fact, the growth of the AWS business in the second quarter was somewhat surprising. Some investors believe that the demand for remote work during the epidemic will no longer exist. And this financial report even made these people “face”-after the economy recovered from the epidemic, a higher proportion of large customers re-increased their subscription and use of AWS cloud. At the same time, due to the “big reshuffle” in some industries, the demand for more marketing has also followed, which has increased the demand for cloud services.

In terms of profit margins, AWS’s profit margin for the quarter was 28.3%. Although it was much ahead of other businesses, it was still slightly lower than the 30% level during the epidemic. This is mainly because after unicorn companies have gone public, although large companies have made a relatively large increase in AWS business revenue, their marginal contribution to profitability is far less than that of start-ups.

Summarize:

Generally speaking, after the epidemic, the advantages of Amazon’s e-commerce business are gradually fading, and AWS is back on the right track of growth. Amazon’s first financial report after Bezos stepped down was not satisfactory. For both Amazon and Andy Jassy, ​​it may take time to get in touch.