Amazon, a tech and retail giant, has, according to Dan Gallagher in The Wall Street Journal, come near to the end of its ability to remain a “growth” company. He writes:
Andy Jassy’s first full year running Amazon AMZN 0.28%increase; green up pointing triangle has been one for the books—and not in a good way.
A macroeconomic slowdown coming just as Amazon has been trying to absorb a major expansion of its fulfillment capacity has proved especially unfortunate for the e-commerce company. When it reports full results for 2022 later this month, Amazon is expected to show its first-ever year of percentage revenue growth in the single digits, while operating margins have fallen by more than half from the previous year.
Wall Street hasn’t been kind; Amazon’s share price fell 50% in 2022—its worst year since the dot-com bubble burst and notably worse than its mega-tech peers’, save for Facebook-parent Meta Platforms. Amazon has shed more than $1 trillion in market value since the stock peaked in July of 2021, during Mr. Jassy’s first week on the job.
But unlike the woes of Facebook’s parent, Amazon’s troubles can’t really be blamed on a massive strategic misstep by its current boss. The slowing economy has hampered both retailers and cloud companies, Amazon’s two main businesses. And the ill-timed decision to blow out Amazon’s delivery network was made under the supervision of former chief Jeff Bezos. Mr. Jassy is overseeing layoffs now expected to affect more than 18,000 workers—mostly among corporate staff—The Wall Street Journal reported on Wednesday.
Over the longer term, it falls on Mr. Jassy to chart a new phase for Amazon. And chances are, it won’t look like the old. Amazon has managed to defy the law of large numbers for a while now; revenue growth averaged 28% annually for the five-year period ending in 2021—beating growth at Apple, Microsoft and Alphabet—even as Amazon’s annual sales approached the $500 billion mark. But growing at even half that rate over the next five years will require Amazon to eventually be adding $100 billion of new business annually.
In a word: unlikely. Hence, Amazon under Mr. Jassy will need to mind the company’s bottom line more closely. Amazon has never commanded the same kind of margins as its tech peers, given its retail focus, but its growing proportion of cloud revenue has kept its operating margin above 5% for the past four years—more than double what it averaged over the previous four.
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