Can Amazon hold its 1T dollar Market Cap? What went wrong?

North America net sales grew 13% YoY but operating loss widened YoY from $-206MM to $-240MM. If we looked back its previous quarters of North America results, the segment has been losing money during the period where E-commerce took huge benefit from COVID lock-down. So how on earth, Amazon, the largest E-commerce on the planet, continued to lose money with all the tailwinds it could possibly have? The answer is over-spending! They have spent tremendous amount of CAPEX on fulfillment center but later realized they spent too much. Now the management is looking at leasing out some of its fulfillment center and called it fulfillment-as-a-service. If North America is losing money, International market is losing more with no surprise.

Now let's talk about AWS. Net sales grew 20% YoY, but operating income shrank from $5.3B to $5.2B. AWS is on a secular trend and will continue to grow at healthy pace. Its margin is expected to be impacted by macro headwind as SMBs have to cut their cloud spending among uncertainties. But the combination of slower YoY topline growth and negative bottomline growth should trigger investors to re-consider its market multiple, which trades at 36x forward P/E. it is among the most expensive tech names on the street.

What's next? The management should focus on optimizing the business by cut more headcounts. Amazon has been a growth story which grants its high multiple. But at one point, it needs to pivot to a cash generator. And the time is probably now. E-commerce market share in U.S. seems to top out during recent years, with over 300B in net sales, even as small as 3% margin would mean $9B in operating profits. Amazon has done it before and should be able to do even better.

Disclosure: The author does not own AMZN at the time of this writing and this is not financial advice