Speaker 1: Well, we were gonna two on the story that we've
Speaker 1: been talking about all morning that we're Amazon's results and
Speaker 1: the shares jumping after the company give a strong sales forecast.
Speaker 1: Joining us now to discuss this further is Punamgoyle, Senior
Speaker 1: US e Commerce and retail analyst at Bloomberg Intelligence. Good
Speaker 1: morning to you. So, of course, earlier this week we
Speaker 1: heard Walmart slashing its earnings outlook for the second time
Speaker 1: this year. Now Amazon giving a strong sales forecast. How
Speaker 1: should we read these divergent results in the retail space? Hi,
Speaker 1: thank you, sure so, absolutely so. When walmart is showed
Speaker 1: weaker guide in for the second time earlier this week,
Speaker 1: we we had said that there were two different reasons really,
Speaker 1: and you can't really read that across to Anazon. The
Speaker 1: primary reason for Walmart's revised lower guidance was because the
Speaker 1: customer was trading into lower margin categories, essential categories like food.
Speaker 1: Keep in mind, walmart customer is a lower income household,
Speaker 1: so they feel the pressure of inflation and the rising
Speaker 1: gas prices hits there. Walic directly, where Amazon's customer base
Speaker 1: is more affluent, so they have more spending power than
Speaker 1: a Walmart customer, and I think that's why you're seeing
Speaker 1: a difference in the guidance. Amazon noted on their call
Speaker 1: that consumers are spending, they are spending more and Prime
Speaker 1: Day was a huge success, so that the consumers still spending,
Speaker 1: so they were able to raise prices. Uh and and
Speaker 1: and that's even on consumers because as you say, consumers, Amazon,
Speaker 1: consumers are at the higher end. Are they able to
Speaker 1: raise prices? Well, I guess my question on the cloud
Speaker 1: is is that primarily an enterprise play or is that
Speaker 1: also somewhat touched by consumers? And can they raise prices there?
Speaker 1: It's an enterprise, it's an enterprise play at the moment,
Speaker 1: and there's plenty of room to grow the cloud business
Speaker 1: for the decade to come and also increase operating margins there.
Speaker 1: Keep in mind, the cloud business is very, very profitable,
Speaker 1: sitting in north of profit margins. Um this quarter was
Speaker 1: a little light at twenty nine percent, but that was
Speaker 1: largely due to stock leased compensation and investments to feel
Speaker 1: the business. Over time, we see that business scoring to
Speaker 1: forty percent operating margins, and I think it will remain
Speaker 1: enterprise for a while. There's plenty of room to run
Speaker 1: that business forward and lead in the cloud category. So
Speaker 1: what would be the biggest risk to Amazon right now?
Speaker 1: I mean we're still in a potential recessionary environment. Prices
Speaker 1: are still running hot, in place is still hot. What
Speaker 1: would be the biggest challenge right now to Amazon? Yeah,
Speaker 1: I think I think a recession is still a risk, right,
Speaker 1: the potential a recession if we do enter a recessionary period,
Speaker 1: consumer spending slows across the board, irrespective of what in
Speaker 1: conspectrum you come from. The other is execution. So in
Speaker 1: the quarter they actually showed better expense control. In fact,
Speaker 1: they estimate for three Q that they could save one
Speaker 1: point five billion dollars and expenses, which they will reinvest,
Speaker 1: but it's still a saving. But I think execution is
Speaker 1: really key across fulfillment. They can't do anything about rising costs,
Speaker 1: right Everyone is dealing with it. Whether it's fuel costs
Speaker 1: which have come down a little, whether it's wages or
Speaker 1: even energy costs bill they're hitting everyone equally, and um,
Speaker 1: it's it's just something that you have to weather by
Speaker 1: either raising prices or by absorbing and finding efficiencies elsewhere,
Speaker 1: which Amazon has done a little of both. Right, we
Speaker 1: saw the prime membership go up earlier this year, and
Speaker 1: they are also planning to raise it internationally in Europe
Speaker 1: um later this fall. It's curious though, because Amazon stock
Speaker 1: has performed pretty poorly this year. It's down more than
Speaker 1: the spink. The stock is still down even after the
Speaker 1: rally today about or so, what's the main driver of that.
Speaker 1: It's slowing online sales gains. Right, So if you think
Speaker 1: about where we were through the pandemic, most online retailers
Speaker 1: saw a surgeon demand and growth rates were essentially through
Speaker 1: the roof. Now that growth rate wasn't going to stay
Speaker 1: at those levels um. As savvy investors, you would know
Speaker 1: that there will be a moderation. But I think if
Speaker 1: you look at the near term, there's there are still
Speaker 1: challenges and we cited some of them before with the
Speaker 1: margin of potential recession and those exist. But I think
Speaker 1: if you look at the business longer term, Amazon still
Speaker 1: has a ton of opportunity to grow, and it's across
Speaker 1: the board. Even in online we see three P driving
Speaker 1: their growth. We see three P sales doubling um over
Speaker 1: the next five years, and we also see plenty of
Speaker 1: growth in very very early stages. Today. The Clowd business,
Speaker 1: the advertising business, the media business, and the latter businesses
Speaker 1: that I mentioned. They're very, very profitable. In fact, the
Speaker 1: WUS generates two thirds of profits. All right, putam unfortunately
Speaker 1: out of time, but thanks very much, Putham Goil, Senior
Speaker 1: US e Commerce and retail analyst at Bloomberg Into Elligence,
Speaker 1: helping us better understand Amazon. This is Bloomberg