The COVID-19 pandemic saw Amazon ($178.29|1.00%) become an omnipresent force in our lives, with its stock price and sales soaring. The e-commerce giant doubled its physical network of warehouses and hired over half a million workers. However, while its revenue base doubled since 2019, Amazon's profits have stagnated, raising concerns about the company's future profitability.
A key factor behind this trend is Amazon's relentless focus on growth and expansion, even at the expense of profits. This strategy, inspired by the philosophy of its founder Jeff Bezos, has largely paid off in the past, with investors giving the company ample leeway to pursue growth and scale, often at the cost of thin margins and losses.
However, as the world started to normalize, consumer trends began to revert to pre-pandemic levels, revealing that the pandemic-induced growth may not be sustainable. This shift in consumer behavior coincided with investors becoming more focused on profits, as easy money and low-interest rates began to wane. As a result, Amazon's once-celebrated razor-thin margins have turned into a burden, with its share price slashed in half since its peak in July 2021.
To make matters worse, Amazon Web Services (AWS),the company's highly profitable cloud business, has seen its growth slow down significantly in the face of increasing competition from the likes of Microsoft, Google, Alibaba, and Oracle. Morgan Stanley predicts that Microsoft will surpass Amazon to become the top cloud provider by 2027, with AWS's market share dropping from around 15% in 2022 to 13% by 2032. This prediction suggests a future where AWS's once-lucrative cloud business might lose its edge.
Amazon's advertising business, another high-margin unit, has also shown signs of slowing growth. Despite the company's efforts to build a multi-billion dollar ad business that competes with Google and Facebook, it still lags behind them in terms of market share and growth rates.
Furthermore, Amazon's core retail business is facing stiff competition from traditional players such as Walmart, which has been investing heavily in its fulfillment infrastructure, and Walmart Plus, its answer to Amazon Prime. Other competitors like Shopify are also targeting the small and medium-sized e-commerce business market.
In addition to these challenges, Amazon's user experience has started to feel clunky and outdated. Searching for products on the platform often results in a chaotic and confusing experience, buried under a mountain of endless choices and, at times, low-quality offerings.
So, what does the future hold for Amazon? The company's current strategy of prioritizing growth over profits is becoming increasingly precarious. It must find new avenues for growth and profitability while navigating the changing consumer landscape and fending off competition from both traditional and emerging players. For Amazon, the road ahead is fraught with challenges, and only time will tell if it can maintain its status as a dominant force in the tech world.