A tremendous quarter from AMZN. Revenue accelerated to +43.6% from 37.4% nullifying the historic ‘4Q effect’ slowdown with the company capitalizing on the share opportunities presented by the resurgence in Covid cases this fall. The growth rate in C$ came in ahead of the pandemic peak of 2Q, a shifted Prime Day certainly helped there. North America was about in line with our expectation at +44.7% (ex whole foods) accelerating from 43.2% last Q. International was a blowout, accelerating 1700bps to +50% in C$ growing 57% reported. AWS saw a slight slowdown to +28% from +29% last Q on a slightly easier compare. Other revenue (advertising) accelerated to +64% from +49% last Q as ad spend recovered as the year progressed. Margin expansion slowed across each segment, though International with 356bps of margin expansion saw its third straight quarter of positive EBIT for an annual margin of 0.7%. Management guided up 1Q revs big, with revenue top end at $106bn for 40% growth vs the street expecting just 27%. EBIT guidance straddled the street, though the trend has been to come in ahead of that range. The company has signaled ~$1.4bn in incremental Covid related costs for 1Q vs last year, $2bn in total.
Outlook
With the big beat and strong guidance, consensus numbers will be moving higher. The problem however now is that the probability of a big slowdown in the coming quarters is high. 1Q would have to come in well above the top end of the guide to not see at least a modest slowdown. 2Q then is facing a much more difficult comparison at the same time we should see virus cases rapidly falling and some mean reversion in brick and mortar shopping, a recipe for a big slowdown. Given the company’s guidance, clearly Covid costs aren’t evaporating this year, but perhaps since the company is lapping ~$11.5bn in Covid costs from 2020 there may be some EBIT upside to current estimates. With slowing revenue trends however, the multiple is most likely going to compress. Then there is the changing macro back drop, Quad 2 today, which is generally bullish for AMZN, changing to Quad 4 by 3Q. Quad4 is the only macro Quad where AMZN has gone down on average historically. The bright side for the next couple quarters is likely be AWS growth. AWS compares are easing while post pandemic industry growth tailwinds remain and AMZN disclosed a backlog of $50bn at year end, 68% higher than last year. We should see a ramp in AWS growth in the next 2 quarters. AMZN is on our long bias list, but the closer we get to 2H the more likely we are to become net bearish.
Management Changes
In 2021 the top 2 execs of AMZN are leaving their positions. Jeff Wilke, former head of global consumer, announced last summer he was stepping down this quarter, and today its announced that Jeff Bezos is leaving the CEO seat becoming Executive Chairman. We don’t think the company will miss a beat in terms of execution, Amazon has perhaps the best pool of talent of any company in the world. New CEO Andy Jassy (former head of AWS) will most likely do well in his new role and Bezos is far from giving up total control, but it is interesting to see multiple changes when those execs had been fixtures at the top of the company for over 20years (Bezos obviously since inception).
Talking to Regulators and the Public
There has been recent scrutiny of the big tech leaders from regulators around size, power, and impact of their businesses. We think Amazon is towards the bottom of the target list for many reasons, but one in particular is how proactive Amazon seems to be on managing the message. We think step 1 was setting up a DC area office (Alexandria, VA) to become more present and relatable with the DC elite as opposed to simply being a west coast tech company. Second is the consumer messaging. You may have noticed over the last year or so Amazon commercials highlighting third party seller participants and the business opportunity AMZN presents for them, without doing any actual 'marketing' to the viewing consumer. Amazon wants to convince the consumer that it’s the good guy, not the dominator of a market. Last is the very specific messaging on company press releases seen this year. A great example is this 4th quarter earnings press release vs that of last year. Last year’s 4Q highlights included talk of how many Alexa devices there are, AWS product launches, Golden Globe wins, management awards, and number of music/FireTV users. This year the highlights carry a VERY different message, with these subheadings in this order:
- Investing in Employee Safety and Providing Good Jobs
- Supporting Communities
- Protecting the Planet
- Empowering Small and Medium-Sized Businesses
- Shopping and Entertainment
- Amazon Devices and Services
- Amazon Web Services
The business accolades take a back seat to all the evidence of being a good corporate citizen. If regulatory action is going to come for Amazon, it won’t be because it didn’t do what is could/should to convince lawmakers and the public otherwise. Amazon’s position in the market is so strong the only thing preventing it from becoming much much bigger is likely government action.
Retail Ecosystem
Fulfillment: “We welcomed nearly 175,000 new full- and part-time employees in Q4 alone. This compares with 50,000 in Q4 of 2019. We also continue to add buildings in our fulfillment and logistics network, with square footage growing about 50% year-over-year in 2020.”
Logistics (AMZL = Last Mile & Mid Mile): “About half of that incremental square footage fit into that sort of AMZL transportation side of the equation, which is a higher mix than what you've seen of any incremental add in a year. It's a higher mix being 50-50 than what you've seen from us in the past.” “So we finished the year where now more than half our packages, both U.S. and worldwide, are handled through AMZL, and a lot of work going into that.”
Grocery: (AmazonFresh) we're at about 8 locations open, and I think in the neighborhood of about half a dozen locations are confirmed to open. So more to come on those. The Go stores, there's around 25 of those that are out there that also important part of that is food. So you see us -- it's -- we've talked about this a bit in the past, is we're doing a lot with online grocery and branching out from Whole Foods and some of the other physical footprint locations and being able to offer that convenience, but we also think that being able to offer some innovative physical store grocery offerings like these go and fresh, some of which have some pretty cool self-checkout capabilities and implement some of the Just Walk Out technology qualities are really some interesting areas that are resonating with customers.
AWS International: An interesting move when talking about AWS international, management chose to highlight two of the biggest global ecommerce competitors as AWS customers. “we're continuing to see strong growth from AWS around the world as well. And there's a number of international located customers out there like MercadoLibre and Zalando and others that we've listed in there that are great customers for us.”
