Global Economic Trends As Seen From The 8.43% Decline Of Amazon, An E-Commerce Giant

On February 3, Amazon released its fourth quarter and annual financial reports of 2022, which were "chilly".

The financial report shows that Amazon's net loss in 2022 will be 2.7 billion US dollars, about 18 billion yuan, lower than the market expectation. This is the first time since 2014 that it has changed from profit to loss, and it is also the worst performance in history. It is also another "bad news" that Amazon threw to the market after two large-scale layoffs. On the same day, Amazon's share price fell 8.43% to close at $103.39, with a total market value of $1.05 trillion, and $97.1 billion (about 657.84 billion yuan) evaporated overnight.

2022 will be a tough year for Amazon. The growth of traditional business is weak and it is still facing fierce competition. The growth of "cash cow" business cloud services is slowing down, and the stock price once dropped by 50%. The poor performance in the fourth quarter, to some extent, is also a short-term pain caused by Amazon's cost reduction and efficiency increase measures to get through the "cold winter".

　　 From profit to loss, creating the worst performance in history

In the global downturn economic environment, Amazon handed over its worst "report card" since its establishment.

According to the financial report, Amazon's net sales in the fourth quarter was $149.04 billion, an increase of 8.58% over the same period last year; Operating income was US $2.737 billion, down 22.8% year on year; Net income fell to US $278 million, down 98.06% year on year.

Source Amazon Financial Report

The increase in revenue and the sharp decline in net profit are mainly due to the increase in short-term costs. Brian Olsavsky, the CFO of Amazon, admitted on the financial report conference call that the fourth quarter of 2022 was mainly affected by severance pay due to layoffs in North America and other aspects, and the cost increased by nearly 2.7 billion dollars, including 640 million dollars in employee severance pay. "If we did not calculate the expenses incurred in the fourth quarter, our operating profit would have reached $5.4 billion."

In 2022 as a whole, Amazon's net sales reached 514 billion US dollars, up 9.40% year on year; Operating profit was 12.2 billion US dollars, down by more than 50% year on year; The net loss was $2.7 billion, down 108% from $33.4 billion in 2021, making it the worst performance in Amazon's history.

Although Oshawski mentioned in the conference call that the net loss includes the pre tax valuation loss of $2.3 billion brought about by the investment in the electric pickup company Rivian Automotive, which is "irrelevant to Amazon's continued operation". However, even after removing this impact, Amazon's performance is still unsatisfactory.

After the global COVID-19 epidemic basically ended, some consumption returned to offline stores, and the growth of Amazon's traditional retail business was limited. In 2022, the North American and international markets will suffer losses due to the impact of rising costs caused by inflation and supply chain bottlenecks.

The cloud service (AWS), which has always been the main source of profit for Amazon, will have a net sales of more than 80 billion dollars in 2022, slightly lower than market expectations. From the overall trend, the growth of cloud service revenue is slowing down. Oshawski revealed that the growth rate of cloud services in the current quarter has further slowed down in recent weeks.

However, Amazon also made a forecast for the growth of its performance in the new year in its financial report. The net sales in the first quarter are expected to reach 121 billion dollars, with a year-on-year growth range of 4% - 8%; The operating profit is expected to be within 4 billion dollars. The market believed that this performance expectation was too low, so after the release of the financial report, Amazon's share price fell 8.43%.

　　 18000 layoffs, "fat" tycoon "slimming down"

Several Amazon sellers told The World Online Marketplace that since the end of last year, Amazon has been slow to receive new products and put them on the shelves, closing many warehouses, limiting the storage capacity of sellers, and increasing storage, distribution and other costs for many times.

This may be related to Amazon's recent cost cutting initiatives. A few months ago, Amazon announced the layoff of 10000 people, which caused an uproar in the industry.

"Cutting 18000 employees is the hardest decision we have ever made," said Andy Jassy, CEO of Amazon. Last November, Amazon announced the first round of layoffs for the device department, and eventually 10000 Amazon employees lost their jobs, the largest in history.

Since January this year, another batch of Amazon employees have received dismissal emails, mainly in the retail department and the human resources department. Someone posted on his pulse that he had just been employed by Amazon in the United States for three months when he suffered this round of layoffs, which was "really unexpected".

The latest financial report shows that in the fourth quarter of last year, the total number of Amazon employees worldwide was 1.541 million, 67000 fewer than the same period of the previous year. Some media quoted the prediction of Neil Saunders, an American retail analyst, that Amazon is expected to carry out multiple rounds of layoffs in the coming months to years.

Amazon's massive layoffs are partly due to its previous over expansion. According to Yahoo Finance, after the outbreak of COVID-19 in 2020, the e-commerce industry ushered in explosive growth, and Amazon added up to 746000 new jobs in the world. Since last spring, as customers moved back to offline stores for shopping, online demand weakened. Amazon launched a large-scale cost reduction review, closed some physical stores and business departments, and froze recruitment throughout the company.

　　 Although this layoff has increased the company's costs in the short term, it is also an inevitable "downsizing" after Amazon's rapid "puffiness" in the long term.

　　 The market value has shrunk by trillions of dollars, and advantageous businesses have been repeatedly oversold

Although cross-border merchants have many complaints about Amazon, it is hard to completely abandon this global e-commerce platform in the short term. For Amazon, the importance of traditional retail business is gradually declining.

The financial report shows that in the fourth quarter of 2022, online stores not only have the slowest growth rate, but also are the only major business sectors with negative growth in the past year. In the financial report and teleconference, Amazon more emphasized the performance of high profit businesses such as paid members, advertising and cloud services.

　　 Amazon seems to be transforming from a global e-commerce retailer into a technology giant that provides * * * digital services.

Although CEO Jia Xi said that Amazon still achieved an annual growth rate of more than 25% in the UK, Germany and other European countries in 2022, he also acknowledged in the teleconference that the European market was affected by inflation, the war between Russia and Ukraine, rising energy prices and other factors, and consumer purchasing power declined, which had a significant impact on Amazon's overall business.

From Wish in the United States, Wal Mart and Coupang in South Korea, to SHEIN and Temu in China, and Shopee in Southeast Asia, Amazon is constantly facing new and powerful competitors in the fierce competition in the global e-commerce market.

Source: SHEIN official website

For example, in May 2021, the number of SHEIN downloads will surpass Amazon for the first time; In the third quarter of 2022, Amazon's revenue was 127.1 billion dollars, which was less than Wal Mart's 152.8 billion yuan in the same period; During the "Black Five" period in 2022, Amazon's online search volume again lost to traditional retail giants Wal Mart, Target, and Kors, ranking only fourth. In addition to shelf platforms, interested e-commerce companies such as TikTok are also constantly encroaching on Amazon's territory, especially in its advantageous North American market.

Amazon's weakness is also reflected in the capital market. In December 2022, Amazon's market value fell from a high of $1.88 trillion in July 2021 to $893.9 billion, shrinking by $1 trillion, creating a record among global listed companies.

Jeff Bezos, founder of Amazon, once said that large companies can only exist for more than 30 years. Amazon, which is less than a year away from its "30 year old", has to find other good ways to keep its vitality growing.