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| 10-May-22 |
|
Current Price: $2175 |
| Wisdom Global: AMZN : 1QCY22 result review |
| USD Mn |
1QCY22 |
YoY |
QoQ |
Remarks |
| Revenue |
116,444 |
7.3% |
-15.3% |
revenue growth YoY driven by Advertising services, AWS & Physically stores partially offset by a decline in online sales and lower growth third-party seller services. |
| Gross profit |
29,674 |
0.3% |
-7.6% |
23% increase in fulfillment costs YoY hurt gross profits |
| EBIT |
3,669 |
-58.6% |
6.0% |
higher marketing and sg&a costs, primarily due to higher marketing spend and increased payroll and related expenses; the company increased headcount by 28% YoY. $6B of additional costs in Q1CY21 primarily due to: a) external inflation (fuel prices, shipping costs, container costs) b) Internal overcapacity from last year’s expansion of both facilities and hiring to cover workers on leave due to covid. |
| Net profit |
2,669 |
-58.4% |
7.4% |
lower taxes partially offset by higher interest expense |
| Non-AWS GM |
11.5% |
(540) bps |
(50) bps |
higher fulfillment costs |
| EBIT margin |
3.2% |
(500) bps |
70 bps |
the company increased fulfillment capacity and hired employees in expectations of continued growth in onilne revenues in 2022 expecting covid to stretch through 2022 |
| NPM |
2.3% |
(360) bps |
50 bps |
lower taxes |
|
| Major Segments Rev. (USD Mn) |
1QCY22 |
YoY (const. cur.) |
% of Total |
Remarks |
| Online stores |
51,129 |
-3.3% |
43.9% |
base effect of a high growth pandemic induced online shopping spree in Q1CY21 |
| Physical stores |
4,591 |
17.1% |
3.9% |
base effect of a poor revenues quarter in physical stores in Q1CY21 due to the pandemic |
| Thirdparty seller services |
25,335 |
6.9% |
21.8% |
base effect of a high growth pandemic induced online shopping spree in Q1CY21 |
| Subscription services |
8,410 |
10.9% |
7.2% |
base effect of a high growth pandemic induced online shopping spree in Q1CY21 |
| Advertising services |
7,877 |
23.4% |
6.8% |
continue to roll out new products for sellers to manage their advertising and increase the ability to analyze and calculate the payback |
| AWS |
18,441 |
36.6% |
15.8% |
significant customer momentum, with new commitments and migrations from customers across many major industries. |
| Others |
661 |
26.1% |
0.6% |
growth across all regions |
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| Major Segments EBIT. (USD Mn) |
1QCY22 |
YoY |
% of Total |
Remarks |
| Non-AWS North America Ops. Income |
(1,568) |
n/a |
n/a |
high base quarter effect |
| Non-AWS, International Ops. Income |
(1,281) |
n/a |
n/a |
high base quarter effect |
| AWS Operating Income |
6,518 |
56.6% |
100.0% |
growth across all geographies |
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| Outlook |
| – Revenue Growth: Amazon is facing tough comps from the pandemic-induced shopping spree of first half 2021; As we get into H2, comps do normalize and hence the company faces growth issues from the pandemic overhang for two more quarters. However, in this market, two quarters seem like an eternity. |
| – EBIT Growth: $6B in additional costs in Q1CY22 compared to the same quarter last year primarily due to a) external inflation: $2B (fuel prices, shipping costs, container costs) b) Internal overcapacity: $4B from last year’s expansion of both facilities and hiring to cover workers on leave due to covid. These costs are likely to persist for several quarters till the overcapacity is utilized by additional sales, not very likely given the high base of last year. In the event that AMZN doesn’t increase sales by 20% plus YoY over the next few quarters, EBIT growth is unlikely (YoY) due to these additional costs eating into margins. We estimate a 32% YoY drop in EBIT in CY2022. |
| – EPS Growth: We expect a deceleration in EPS in CY22 due to two reasons a) higher base-year sales of CY21 from the pandemic induced shopping spree which is unlikely to continue in CY22 b) Higher costs to the tune of $6B per quarter in CY22 compared to CY21 due to external factors (inflation) and internal factors (overcapacity in facilities and human resources). We estimate a 32% YoY drop in adjusted EPS in CY22. |
| – TAM Growth: Without much fanfare, in Q1 2022, Amazon quietly introduced “Buy with Prime” service for any merchant that wants to sell products directly from its own website but still wants fulfillment and payment processing from Amazon. Buy with Prime enables third-party sellers to offer Amazon Prime services on their own websites. This is in direct competition with Shopify, one of the only other options available in the market today. Shopify has TTM revenues of $4.8B which have grown at a CAGR of 50 percent-plus over the last four years. |
| Valuation |
| – At its current price AMZN is trading at about 49x our CY23 EPS estimates which seems quite expensive for the current market multiples. |
