Amazon Q4 2022 Financials
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A huge portion of it's money comes from people paying for the top search result on Amazon's retail site. Oh sure, they ad a very tiny "sponsored" but you have to scroll past three of those before you see the actual search result.
But if Amazon Retail didn't exist, Amazon Ads wouldn't either. Meanwhile, AWS could be split off as an independent company and be quite successful.
But ads only works because of Amazon retail's sorta-kinda-monopoly position. It's still a big distortion of the market. But I don't have a bright idea what to do about it.
Last time I shopped at Walmart, it was a mess and their e commerce is even worse, products come all beat up, 3rd party policies are a free for all atm, and the scams are even worse there
I agree on the third-party products/listings. I have to assume that Sam Walton is turning in is grave because it all seems like a perversion of old-school merchandising.
With that said, Walmart is beginning to push 3rd party sellers a lot online too, and filtering for items sold by Walmart can be difficult. A lot of times items show up as in stock in search results only to actually not be in stock when I finally load the product or cart pages, and Walmart will often switch these to in-store pick up automatically which is frustrating as the nearest store to me is quite far. I’ve had good luck shopping at Target but their prices are almost never as competitive.
Acquiring AWS would absolutely be the kind of emergency/pull out every stop to make it happen event worth tapping every connection (and then some) to make happen. Overnight they would go from scrappy second place to the dominant provider of all cloud computing on the planet.
Far more dumb mergers were greenlit in the past like AOL/Time Warner.
https://siliconangle.com/2021/12/23/report-ftc-chair-lina-kh...
https://www.nytimes.com/2022/12/09/technology/lina-khan-ftc-...
In the 2020 presidential election year Microsoft donated over 21 million dollars, almost all to democrats and the Biden campaign. They were the 26th largest donor, period.
Biden appointed Lina Khan, she owes her job to him (and he can choose not to appoint her again!). Biden owes a substantial amount of his presidential campaign funding to Microsoft... not hard to connect the dots here.
Go back decades--Hillary Clinton, Obama, Gore, etc. and Microsoft was always been donating enormous amounts of money to democratic candidates.
"NOTE: Organizations themselves cannot contribute to candidates and party committees."
How about an actual threat, the Koch family (one of the infamous brothers died), who by themselves have a budget about the same size as the entire us republican party, and have taken it upon themselves to select the next republican presidential candidate - and they will back that up with enormous spending. Regardless of your views on the political parties specific choices, it's a bad idea for a private group to control (or credibly attempt to control) who can run for president - this is fundamentally different than microsoft's donations (even if I don't like that corporations are putting money into politics). Koch have had a lot of success in setting the previous few decade's political framework about how the us looked at international trade, along with influencing the libertarian party (David Koch was the Libertarian VP candidate in 1980, but had enormous impact on that movement over time).
I don't feel like you can draw conclusions like that, or you can? idk
It’s a smart move to use single digit margins in retail as a route to making double digit margins in online advertising.
What are some of the average metrics for the average Amazon seller doing paid advertising? Cost per impression, cost per click, cost per conversion/sale?
I wonder how they compare to Google AdWords.
E.g. Apple famously doesn't report App Store revenues. Instead it's just part of their "services" revenue which includes several other things.
Edit: guess it was FASB, not SEC
The only section in the 10K referencing FASB is above.
This is related to reporting CUSTOMER contracts, not a requirement to report Business Division revenue (like Amazons Ad Business).
The reason for this change, which again is unrelated to the original topic at hand, is that it posses a financial risk to investors if X customer represents a significant portion of the companies revenue.
> Certain advertising services are now classified as revenue rather than a reduction in cost of sales
Reading in-between the lines on this, advertising flipped from retail contra-cogs to it's own revenue segment. Advertising biz got to big to report like that.
All of this is because enormous levels of cap-ex spend: $58bn in net purchases of property and equipment over the year ($63bn gross). The other piece is $9bn in debt paydown of lease obligations, which is not really concerning because it's just a debt reduction.
They don't provide much of a breakdown of this very large capex number. Presumably a lot of it is fulfilment center spend, but there's data centers, vehicles, etc., to consider as well. It really comes down to whether this spend is wise. If this cap-ex will generate strong ROI, it's fine.
Everyone is signing up for Savings Plans and RIs. Everyone. We actually just released a report on this showing a steep decline in on-demand utilization throughout Q4 which you can see here...it's just amazing to see it finally popping up in earnings reports: https://www.vantage.sh/cloud-cost-report/2022-q4
Thanks for publishing these reports! They have tons of business insight and, personally, I've really enjoyed reading them.
TLDR: If you have predictable money coming on because you are so necessary to society (like a utility), instead of paying profits to the government, you can take loans against your cash flow and grow by acquiring businesses with the extra cash. You will always seem unprofitable, and you get to benefit from loan interest deductions on your predictable cash, but in reality you grow bigger than ever, through acquisition. Another thing Amazon has going for it is the 30-60-90 terms it has with many suppliers and affiliates - they make the money now and pay them a month or three months from now. That makes them further bank in huge valuation compared to the rest of the sector. Cash flow is king.
That is why Leveraged Buyouts were a big thing for a while and why when interest rates go up, the math for many of these levered giants stops working or needs adjustment. Toys RUs are an example. It’s a very valid growth approach, and it works well if you can afford (and don’t overdo it).
The Amazon retail business would struggle to compete effectively on its own, and would have to work on its weaknesses. As a whole, the economy would be better off.
The essence of US antitrust is consumer harm. If Amazon were broken up the retail arm might die, and consumers would arguably suffer -- they wouldn't receive the subsidies they currently get from AWS, they'd pay more for products and get slower shipping.
To argue that Amazon retail consumers would be better off without the subsidies from AWS takes some slightly more complex logic -- that increased Amazon prices would lead to more competition and so lead to lower prices (or better quality). IMO that argument is tenuous.
If Amazon, having killed off its competition, were to raise prices I think you'd have an argument, but at the "undercutting" stage I think (IANAL) they're safe.
This isn't necessarily a downside for consumers as you might get actual customized retail shops opening up again. This would enable you to get your stuff faster than delivery.
I would love to have a "technical bookstore" back again, for example. Amazon's retail arm imploding would enable that business to return.
Having an anchor tenant with "2014" problems in 2010, or "2020" problems in 2015, especially if they roll up to the same CEO as your org, gives the org a huge head start in making software and platforms that will, once 2020 actually rolls around be tremendously compelling to everyone else.
Without Amazon's innovation funnel, AWS will be Rackspace in 10 years (well, maybe Oracle in 5 years). Maybe they'd keep adding more hosted services (Announcing ClickTower, our columnar database as a service!) but that's not innovation.
At a really high/overly-simplified level, how far off from probability is their retail section? Do they just need to semi-aggressively tweak some margins about 2-3% in maybe their shipping cost/subsidizing department, slow down on R&D/reinvestment into this sector by about 2-3%, and maybe swing their marketplace fees 1% and boom, they are in business?
Or is it more complicated?
I wonder how much fat there is to trim in this sector of their business, if any.
Why do people think Amazon retail couldn't survive now without AWS, when it survived just fine before AWS? (And now has Prime, advertising, and 3PS/marketplace fees as a logical part of the Retail/non-AWS unit.)
> For contracts with original terms that exceed one year, those commitments not yet recognized were $110.4 billion as of December 31, 2022. The weighted average remaining life of our long-term contracts is 3.7 years. However, the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term.
Even if new business stops, and that revenue extends beyond contracted terms, it should provide a nice cushion.
[1]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/d2fde7e... (10-K, page 49)
AWS has the perfect large-scale lab to test things.
As people get more used to cloud-native deployments, they'll see the value in rented compute instead of leased CPUs. It just seems like too good of a bargain (even with the high prices of AWS) to use them instead of self hosting. You need less engineers, you get pre-built tech stacks and there is a major reduction in support burden.
So what I’m curious about is whether the growth is actually in transitioning from onprem to cloud, or existing cloud consumers requiring more infrastructure.
I know we’ve been throwing more and more compute at our scalability problems rather than optimizing what we have.
I'd actually be surprised if most of the growth in cloud was coming from companies migrating at this point. From my personal experience it would seem more likely that most of the growth would come from the growing demand in digital infrastructure, not demand for cloud per-say.
> I know we’ve been throwing more and more compute at our scalability problems rather than optimizing what we have.
On this point, I've noticed that cloud has made it so much easier to add infrastructure that companies will now do it without really thinking. For better or worse hardware is no longer the constraint it used to be.
Everything either starts or ages out at some time and is created.replaced with something new, and when that happens, its going to be in the cloud.
What do we think would happen to the retail Amazon if it did not have the giant profit-center of AWS? Presumably it would crumble under a lack of profit, or start doing the MBA thing to generally worsen everything to drive up the quarterly results.
How would you split that between AWS and Retail?
Depending on how much of the value goes along to AWS... retail could look like a lot of high value / low margin businesses that do just fine. Obviously if you give 99% of the value to retail and pull the profit center, it would be bad. But that wouldn't happen.
Remember that Market cap = Enterprise value - Net debt.
We can argue that enterprise value of business is different, but by changing net debt figure of each company we can make market cap of both firms equal
If the multiples of each business were the same, we'd expect a roughly 75/25 split along the lines of profit, but the multiples are probably not the same, and that's the interesting part of the question. It represents market judgement on the future growth trajectories of e-commerce vs e-infrastructure.
"Obviously if you have an opinion that retail has 99% of the market cap and pull the profit center, that would be bad".
What in the world is that supposed to mean? Our opinions aren't going to affect the world, there will no consequences if somebody has that opinion. How is it bad? And with that interpretation, I have no idea of what "pull the profit center" could mean. Because that has to be talking about the way you split the company, not about an opinion you'd have.
You don't split the market cap of a company? Really?
If I have a company worth 1 billion dollars and split it exactly down the middle in assets and liabilities, the assigned value of each company is nowhere near 500 million dollars?
Yes you will lose a little bit in terms of "lost synergies", but the starting point for a split (or a merger) is to add together or divide up the market cap.
Amazon reports its first unprofitable year since 2014 - https://news.ycombinator.com/item?id=34640922 - Feb 2023 (189 comments)
I wish the author had elaborated on why it should be illegal. (Or maybe, how it is?)
Its implicit - an actor is taking over entire societal logistics and ecommerce while burning investor money with no obligation to make profit, hence be sustainable. (applies to many tech giants). Practically becoming a public utility that the society depends on for running itself day to day.
If that actor goes tits up, then the entire society will experience chaos due to that supposedly private, but actually public infrastructure crumbling down with nothing at that scale to back it up.
Its too risky and irresponsible. You can bet that they will force the government to bail it out if that happens, by saying that it is 'too big to fail'. Socialized costs. Privatized profits.
How is it possible that Amazon paid $2B for Rivian which after 1 loss almost all its value?