So, as predicted, Amazon’s growth is slowing down. (So is Shopify’s
, so is just about everybody’s.) As I wrote in a tweet a week ago
, for Amazon (and others who benefitted), the pandemic produced an accelerated
growth cycle, but not an accelerating
one. So what was maybe three years of growth in digital commerce happened in a single year, meaning this year’s numbers are basically the same as last year’s, maybe growing a little or contracting a little. Matt Day at Bloomberg calls this Peak Amazon
, noting that Amazon’s retail unit sales were essentially flat year-over-year.
You can imagine a universe where the pandemic (which is not actually in any way meaningfully over, although people are obviously no longer sheltering in place) triggered a death knell for brick-and-mortar businesses and a growth spiral for digitally-minded ones, producing double-digit growth year after year into the foreseeable future. We do not live in that universe.
That does not necessarily mean that digital commerce (in general, or at Amazon in particular) is now a mature business and this is its approximate level. Obviously, Amazon does not believe that and is not in the business of believing that. Hence Andy Jassy’s annual letter about these still being the early days for Amazon’s entire portfolio. Early days however does not mean easy days, and it’s fair to say the days of easy growth are over. The entire stock market seems to be reflecting that realignment over the last week. Even commercial real estate and construction are getting ready for more bearish times
, given that Amazon (among other companies) is less likely to be plowing record profits into even more shipping capacity.
The growing and profitable areas at Amazon remain AWS and its advertising business, the latter of which (as Corey Quinn persuasively argues
) is a weird
Corey’s actual phrase is “it should not exist… It almost entirely is Amazon sellers paying to play. It degrades search, it means customers buy cheap knock-offs instead of what they want, and it erodes trust as a result… It’s rent-seeking Day 2 behavior that’s starting to come to [AWS] as well.”
Anyways, let’s say at the very least, Amazon’s two properties still showing rapid growth in 2022 are all-digital plays in fast-growing markets where Amazon has a commanding position and a strong ability to charged both customers at the margins and those it’s fully captured a premium for things that don’t cost Amazon very much but matter materially to their customers’ businesses a great deal.
What fundamentally distinguishes Amazon from a smaller and more execution-dependent digital company like Netflix or even Facebook is that it has lots of these customers, and can extend both the total revenue and marginal profit it ekes out from them a great deal. But its projections, too, have to be brought back to earth with a great deal of force.
This is, or should be, a good thing! Amazon has to work harder, be shrewder in its capital investments, do more to gain marginal customers (both end-users and vendors) and to regain customers’ trust (ditto). But in the meantime, it means a great deal of paper wealth is correspondingly less valuable than it once was.
At Seeking Alpha, Philipp Stuelcken argues that (I’ll paraphrase) Amazon is still in a long-term growth phase, that measuring year-over-year growth for any digital commerce company is going to be an unfair metric this quarter, and also that the retail store doesn’t matter that much because AWS and advertising growth are still so good. The title of the post is “The Relevance of the E-Commerce Business Is Massively Overestimated
My own sense is that this is going too far. E-commerce is still Amazon’s bread and butter. Its advertising business would simply disintegrate if its marketplace no longer looks like a growth opportunity. The case for Amazon isn’t “E-commerce doesn’t matter” so much as “there’s still plenty of room.” There’s room to grow globally, there’s room to grow in grocery, in furniture and other larger-ticket items. Every other company is going to be facing the same headwinds, and none of them have already built Amazon’s infrastructure to take them on. Nobody else can deliver you so many goods on the same day or the next day, for free, on demand. E-commerce is the font from which all of Amazon’s waters flow. Early days, indeed.