WEBVTT - Poonam Goyal on Amazon (Audio)

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<v Speaker 1>Lynn, who at one point became alarmed that President Biden

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<v Speaker 1>might declare a narrower set of situations under which he

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<v Speaker 1>would consider using the weapons. And again a story that

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<v Speaker 1>we've talked about a little bit. This morning in the

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<v Speaker 1>south Town Morning Post, they feature these comments from the

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<v Speaker 1>Commerce Department saying semiconductor export curbs that are hitting China

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<v Speaker 1>could be followed by biotech and AI restrictions. It's one

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<v Speaker 1>of the top stories that they feature in today's pages.

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<v Speaker 1>Nine minutes before the top of the art, Rich and

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<v Speaker 1>Dug to you. Okay, let's get to our next guests,

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<v Speaker 1>and we're talking Amazon as it projects it's the slowest

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<v Speaker 1>holiday quart of growth in the company's history. To discuss

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<v Speaker 1>all this is Punam Goyle and seeing at US e

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<v Speaker 1>commerce and retail analyst at Bloomberg Intelligence. First of all,

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<v Speaker 1>put him give us a sense overall of what Amazon

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<v Speaker 1>is suggesting about the quarter gone and what they're seeing

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<v Speaker 1>for the all important Christmas shopping period. Sure, so, I

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<v Speaker 1>think you know, when you think of Amazon, you're really

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<v Speaker 1>thinking of to the things. One is their aws business

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<v Speaker 1>and the other their retail business. So on the retail side, um,

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<v Speaker 1>they clearly you know, are being impacted by FX rates,

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<v Speaker 1>and we saw that they had a high single digit

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<v Speaker 1>sales increase, which falls short of expectations, largely even though

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<v Speaker 1>they had the benefit of Prime Day which added about

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<v Speaker 1>four basis points to sale heading into the fourth quarter.

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<v Speaker 1>I think the question is they're prepared, and they said

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<v Speaker 1>that out right, but the question really comes down to

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<v Speaker 1>our the customers going to spend as much as or

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<v Speaker 1>more than they spend last year, and with inflation concerns

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<v Speaker 1>top of mind, With spending being curved across the board

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<v Speaker 1>across many industries, we think that it will be tougher

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<v Speaker 1>for Amazon and others to really grab share of wallet um.

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<v Speaker 1>It will be more promotional and retailers will have to,

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<v Speaker 1>you know, give up margin to drive sales. So you're

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<v Speaker 1>looking at inflation through the lens of how it may

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<v Speaker 1>impact act the consumer. But I'm wondering how this is

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<v Speaker 1>impacting the company. What type of cost inflation has Amazon

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<v Speaker 1>had to deal with. I mean, inflation has been a

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<v Speaker 1>big problem for Amazon. In fact, they expected to cut

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<v Speaker 1>one point five billion dollars in cost from two Q

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<v Speaker 1>to three Q, weren't able to do that. They were

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<v Speaker 1>able to cut one billion, so five million short and

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<v Speaker 1>that was largely due to the fact that they couldn't

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<v Speaker 1>really find cost savings while they were ramping up for

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<v Speaker 1>sales events like Prime Day and early access sales. Costs

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<v Speaker 1>are going to stay elevated. It's not going to be

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<v Speaker 1>an easy feat for them to really bring cost down

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<v Speaker 1>any time soon. We expect cost pressures to persist through

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<v Speaker 1>early one age of next year at the minimum. And

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<v Speaker 1>the question is do they have pricing path that that's

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<v Speaker 1>going to be crucial. But let's also look at all

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<v Speaker 1>this punam and say and and just take a look

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<v Speaker 1>at what the read through is overrule amongst its competitors

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<v Speaker 1>and the industry generally. Yeah, so the industry um is

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<v Speaker 1>taking prices up where they can, so they have been

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<v Speaker 1>selective price increases, and I suspect that where Amazon can

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<v Speaker 1>do so, it will. But the question is on the

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<v Speaker 1>promotional front, right, there's too much inventory a cross retail

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<v Speaker 1>at Amazon and at their rivals, and as inventories continue

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<v Speaker 1>to build, we will see a rush to drive higher

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<v Speaker 1>promotions to really make room for new product. So margins

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<v Speaker 1>aren't going to improve and the customer will likely pay

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<v Speaker 1>alloy ticket and given that they'll be you know, using

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<v Speaker 1>promotions to really make their purchases. Back in the day

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<v Speaker 1>when Mr Bezos was running the company, one of the

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<v Speaker 1>things that he was criticized for repeatedly was taking them.

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<v Speaker 1>I guess you could say what would have been profit

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<v Speaker 1>for the company and plowing it back into build out

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<v Speaker 1>different types of infrastructure for Amazon. Where is Amazon these

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<v Speaker 1>days with with capex and spending. Yeah, I think they

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<v Speaker 1>have to rethink that capex budget today. Um, you're absolutely

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<v Speaker 1>right that back in the days, that was something that

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<v Speaker 1>the company strived for and named for. And it didn't

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<v Speaker 1>matter right that that's that's a big thing here, Like

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<v Speaker 1>it didn't matter that they were spending um on capex

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<v Speaker 1>to really build out the future of Amazon. But at

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<v Speaker 1>that time, growth was also more superior than it is today.

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<v Speaker 1>So in the face of slowing growth, I think we

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<v Speaker 1>heard Amazon say it, and we've talked about it many times,

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<v Speaker 1>that they really have to cut back on costs and

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<v Speaker 1>that includes future plans and areas that aren't going to

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<v Speaker 1>pay off anytime soon. And we saw them do this

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<v Speaker 1>most recently when they pulled back on the drone delivery initiative.

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<v Speaker 1>They I think we've got a grace merchandise volume of

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<v Speaker 1>one trillion dollars as a target for about Does this

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<v Speaker 1>derail that? I don't think it derails it. I think

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<v Speaker 1>it could, you know, still happen because if you look

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<v Speaker 1>at the underlying growth, then I think that's the key here.

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<v Speaker 1>If you look at the underlying sales growth that Amazon

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<v Speaker 1>had even this quarter and compared to the first half,

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<v Speaker 1>it's improved quite a lot. Taking out effects, you're still

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<v Speaker 1>seeing double digit sales gains. So if we continue with

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<v Speaker 1>those double digit sales gains for the next three years,

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<v Speaker 1>we can still hit that one trillion um dollar number. Also,

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<v Speaker 1>keep in mind that three P sales, which is more

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<v Speaker 1>than fifty percent of Amazon sales, did really well in

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<v Speaker 1>the quarter. In fact, they beat consensus, and that's a

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<v Speaker 1>function of higher spending within three P sellers as well

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<v Speaker 1>as up rising take grade as more sellers take advantage

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<v Speaker 1>of Amazon's growing offerings to help them support their businesses.

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<v Speaker 1>So away from e commerce, let's talk very briefly here

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<v Speaker 1>about the web services division, the cloud division that Amazon

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<v Speaker 1>runs so well, how has it been faring these days.

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<v Speaker 1>It's you know, it's still a business that we are

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<v Speaker 1>very optimistic about in the longer run, but in the

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<v Speaker 1>third quarter, we saw it gained slowed sales sload, profit sload,

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<v Speaker 1>and it's in part due to enterprise customers pulling back

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<v Speaker 1>their own spend as they focus on their own cost

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<v Speaker 1>saving initiatives. So it's a temporary hiccup. We do think

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<v Speaker 1>that will persist into early but in the long run,

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<v Speaker 1>we are very optimistic on the A W. S business

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<v Speaker 1>and that I will recover and margins will expand to

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<v Speaker 1>all right, thank you, Punham. Always a pleasure. Wonderful inside

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<v Speaker 1>from Punam Goyle, senior US e Commerce and retail analyst

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<v Speaker 1>at Bloomberg Intelligence, talking today about Amazon, which after the

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<v Speaker 1>Bell forecast net sales for the current quarter well below estimates.

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<v Speaker 1>This stock had been down by as much as in

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<v Speaker 1>the late session. Right now, we're off, Rashad Salama, thank

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<v Speaker 1>you for being with us the last two hours of

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<v Speaker 1>the program. Have a good TV program and enjoy the

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<v Speaker 1>weekend in Hong Kong. We'll get Tokyo and Soul online

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<v Speaker 1>at the top of the hour. This is Bloomberg