WEBVTT - Poonam Goyal on Amazon Earnings (Audio)

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<v Speaker 1>Well, we were gonna two on the story that we've

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<v Speaker 1>been talking about all morning that we're Amazon's results and

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<v Speaker 1>the shares jumping after the company give a strong sales forecast.

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<v Speaker 1>Joining us now to discuss this further is Punamgoyle, Senior

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<v Speaker 1>US e Commerce and retail analyst at Bloomberg Intelligence. Good

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<v Speaker 1>morning to you. So, of course, earlier this week we

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<v Speaker 1>heard Walmart slashing its earnings outlook for the second time

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<v Speaker 1>this year. Now Amazon giving a strong sales forecast. How

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<v Speaker 1>should we read these divergent results in the retail space? Hi,

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<v Speaker 1>thank you, sure so, absolutely so. When walmart is showed

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<v Speaker 1>weaker guide in for the second time earlier this week,

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<v Speaker 1>we we had said that there were two different reasons really,

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<v Speaker 1>and you can't really read that across to Anazon. The

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<v Speaker 1>primary reason for Walmart's revised lower guidance was because the

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<v Speaker 1>customer was trading into lower margin categories, essential categories like food.

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<v Speaker 1>Keep in mind, walmart customer is a lower income household,

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<v Speaker 1>so they feel the pressure of inflation and the rising

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<v Speaker 1>gas prices hits there. Walic directly, where Amazon's customer base

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<v Speaker 1>is more affluent, so they have more spending power than

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<v Speaker 1>a Walmart customer, and I think that's why you're seeing

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<v Speaker 1>a difference in the guidance. Amazon noted on their call

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<v Speaker 1>that consumers are spending, they are spending more and Prime

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<v Speaker 1>Day was a huge success, so that the consumers still spending,

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<v Speaker 1>so they were able to raise prices. Uh and and

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<v Speaker 1>and that's even on consumers because as you say, consumers, Amazon,

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<v Speaker 1>consumers are at the higher end. Are they able to

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<v Speaker 1>raise prices? Well, I guess my question on the cloud

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<v Speaker 1>is is that primarily an enterprise play or is that

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<v Speaker 1>also somewhat touched by consumers? And can they raise prices there?

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<v Speaker 1>It's an enterprise, it's an enterprise play at the moment,

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<v Speaker 1>and there's plenty of room to grow the cloud business

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<v Speaker 1>for the decade to come and also increase operating margins there.

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<v Speaker 1>Keep in mind, the cloud business is very, very profitable,

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<v Speaker 1>sitting in north of profit margins. Um this quarter was

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<v Speaker 1>a little light at twenty nine percent, but that was

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<v Speaker 1>largely due to stock leased compensation and investments to feel

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<v Speaker 1>the business. Over time, we see that business scoring to

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<v Speaker 1>forty percent operating margins, and I think it will remain

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<v Speaker 1>enterprise for a while. There's plenty of room to run

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<v Speaker 1>that business forward and lead in the cloud category. So

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<v Speaker 1>what would be the biggest risk to Amazon right now?

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<v Speaker 1>I mean we're still in a potential recessionary environment. Prices

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<v Speaker 1>are still running hot, in place is still hot. What

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<v Speaker 1>would be the biggest challenge right now to Amazon? Yeah,

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<v Speaker 1>I think I think a recession is still a risk, right,

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<v Speaker 1>the potential a recession if we do enter a recessionary period,

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<v Speaker 1>consumer spending slows across the board, irrespective of what in

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<v Speaker 1>conspectrum you come from. The other is execution. So in

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<v Speaker 1>the quarter they actually showed better expense control. In fact,

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<v Speaker 1>they estimate for three Q that they could save one

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<v Speaker 1>point five billion dollars and expenses, which they will reinvest,

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<v Speaker 1>but it's still a saving. But I think execution is

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<v Speaker 1>really key across fulfillment. They can't do anything about rising costs,

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<v Speaker 1>right Everyone is dealing with it. Whether it's fuel costs

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<v Speaker 1>which have come down a little, whether it's wages or

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<v Speaker 1>even energy costs bill they're hitting everyone equally, and um,

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<v Speaker 1>it's it's just something that you have to weather by

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<v Speaker 1>either raising prices or by absorbing and finding efficiencies elsewhere,

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<v Speaker 1>which Amazon has done a little of both. Right, we

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<v Speaker 1>saw the prime membership go up earlier this year, and

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<v Speaker 1>they are also planning to raise it internationally in Europe

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<v Speaker 1>um later this fall. It's curious though, because Amazon stock

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<v Speaker 1>has performed pretty poorly this year. It's down more than

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<v Speaker 1>the spink. The stock is still down even after the

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<v Speaker 1>rally today about or so, what's the main driver of that.

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<v Speaker 1>It's slowing online sales gains. Right, So if you think

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<v Speaker 1>about where we were through the pandemic, most online retailers

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<v Speaker 1>saw a surgeon demand and growth rates were essentially through

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<v Speaker 1>the roof. Now that growth rate wasn't going to stay

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<v Speaker 1>at those levels um. As savvy investors, you would know

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<v Speaker 1>that there will be a moderation. But I think if

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<v Speaker 1>you look at the near term, there's there are still

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<v Speaker 1>challenges and we cited some of them before with the

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<v Speaker 1>margin of potential recession and those exist. But I think

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<v Speaker 1>if you look at the business longer term, Amazon still

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<v Speaker 1>has a ton of opportunity to grow, and it's across

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<v Speaker 1>the board. Even in online we see three P driving

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<v Speaker 1>their growth. We see three P sales doubling um over

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<v Speaker 1>the next five years, and we also see plenty of

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<v Speaker 1>growth in very very early stages. Today. The Clowd business,

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<v Speaker 1>the advertising business, the media business, and the latter businesses

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<v Speaker 1>that I mentioned. They're very, very profitable. In fact, the

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<v Speaker 1>WUS generates two thirds of profits. All right, putam unfortunately

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<v Speaker 1>out of time, but thanks very much, Putham Goil, Senior

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<v Speaker 1>US e Commerce and retail analyst at Bloomberg Into Elligence,

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<v Speaker 1>helping us better understand Amazon. This is Bloomberg