E-commerce and cloud computing are the twin engines propelling Amazon.com into the stratosphere. Those businesses were already good, and 2020’s challenges made them better, according to the company’s third-quarter results. But that creates a conundrum. With a market value of $1.6 trillion, Amazon is either a bargain – or an antitrust target.
Stellar quarter from e-commerce and cloud computing
The company led by Jeff Bezos said that total quarterly revenue rose 37 per cent year-over-year to $96 billion. The pandemic is creating habits that will stick providing further fuel for Amazon’s rocket-like growth. More people are shopping online than ever before and not just for essentials like groceries. Amazon said sales at its North America division rose 39 per cent. It’s in a pretty position since overall U.S. e-commerce sales are expected to increase more than 30 per cent this year, according to research firm eMarketer.
Cloud services are getting a similar lift. More companies are moving their data to the cloud to allow employees to work from home, which helped boost revenue in Amazon’s AWS division 29 per cent to nearly $12 billion. UBS figures at the high end of its range cloud computing will reach a market size of $730 billion in four years with the providers Amazon, Microsoft, Alphabet and Alibaba to benefit most. The four already have more than 60 per cent share with Amazon as the leader.
Either a bargain or an antitrust target
Since the financial crisis 12 years ago, Amazon’s market capitalisation has ballooned from about $40 billion to the colossus it is now. It stands to reason that during this downturn it will only mushroom further. The US Census Bureau survey in August found that more than one-third of all small businesses reported being financially impacted by the pandemic while Amazon continues to blossom.
That puts Amazon’s eye-watering value of more than 70 times next 12 month’s earnings according to Refinitiv, in perspective. If Amazon remains dominant, there’s little standing in its way. And growth to net income — which tripled to $6.3 billion in the quarter — suggests Amazon is getting pricing power, too.
But that makes it even more of a quarry for Washington regulators already circling the firm. A recent congressional report has marked Amazon’s dual position as both an operator and seller as predatory. For Bezos, making the case that big isn’t necessarily bad is getting harder.