Amazon: The Behemoth – Weekly Stocktake with Danyaal

Amazon: The Behemoth – Weekly Stocktake with Danyaal

Weekly Stocktake with Danyaal

3 February 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 049 79 270 80 241 9,85%
NASDAQ Composite 10 467 11 138 12 007 14,71%
S&P 500 3 840 3 972 4 136 7,71%
Prime Lending Rate 10,50% 10,50% 10,75% 2,38%
Lunar BCI WW Flexible Fund 141,43 147,52 154,32 9,11%
USD/ZAR 16,98 17,19 17,49 3,00%
EUR/ZAR 18,44 18,56 18,86 2,28%
Brent Crude ($’barrel) 85,95 87,58 79,73 -7,24%

Source: Iress

Amazon: The Behemoth

Last week Thursday, Amazon released their full year results, with revenue growing by 12.8% to a staggering $501.7 billion. However, their net income took a hit and decreased from a $33.4 billion profit in 2021 to a net loss of $2.7 billion in 2022. This was mainly due to a loss in the “other income” line item of $16.8 billion. Amazon is a company made up of multiple businesses that serve multiple different sectors, including their retail ecommerce platform, the highly profitable AWS cloud-computing service, and various investments, like electric-automaker: Rivian.

When looking at Amazon, it’s helpful to examine each segment separately. The retail e-commerce business drives Amazon’s revenue but it only recorded a net margin of -2.4% for the year. On the other hand, AWS brings in less revenue ($80.1 billion) but has a whopping 28.5% margin. Most of the company’s profit comes from the AWS segment. Amazon uses this segment to subsidize their ecommerce business and gain market share by lowering product prices and undercutting their competitors.

There’s still some noise in Amazon’s income statement, mainly from the “other income” line item. This is due to Amazon’s 20% stake in Rivian. Rivian is listed on the Nasdaq, and its share-price movement directly affects Amazon’s “other income” line item. Amazon invested just over $1.3 billion to acquire this stake, with most of it being acquired pre-initial public offering. In 2022 – Rivian’s stock price decreased over 80%. As of Friday 3 Feb 2022, Rivian’s market cap was just under $18 billion.

As Amazon operates in multiple areas, it faces competition from various industries. For example: the e-commerce division competes with other retailers like Walmart; the AWS cloud service faces competition from Microsoft and Google; and Rivian faces competition from automakers such as Tesla. This highlights the need for Amazon to constantly innovate and stay ahead of the competition to maintain their market position.

Amazon, Walmart, and Microsoft are held in the Lunar BCI Worldwide Flexible fund.

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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
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