Amazon disappointed with their earnings this quarter and was punished in the market weakness of the days that have followed by a c.25% price fall, taking it back to valuations of a year ago. We see a mixed bag of news in the delivery and overall remain positive on the company’s outlook going forward.

The e-commerce business was the epicentre of weakness, demonstrating no growth versus the same period the year before, but maintained that level of revenue off the back of the immense gains they experienced during the pandemic. In our view this provides a much bigger baseline from which normalised 10%+ YOY growth should resume in the quarters to come. Amazon’s share of online continues to grow in the US, and online’s share of total retail still has much growth ahead of it with less than 20% penetration today.

Management are already reducing some of the surplus capacity they had put in place to service the pandemic surge in demand and which had tipped this quarter’s operating line below expectations.

 A write-down of the company’s investment in the EV truck maker Rivian, whose post-IPO market cap fell by 52% tipped the company to a loss for the quarter.

However, augmenting the case for a normalisation in fulfilment cost and revenue growth at e-commerce, cloud AWS and advertising both showed further impressive strength with gains in market share and revenues of 37% and 23%. On current valuation, if investors get fair value for the market-leading cloud business, then they get the #1 global e-commerce and #3 global advertising platforms at half price.

We believe there is a strong if unfashionable case just now for a strong recovery in cost management and core revenues in the quarters and years ahead, and notwithstanding significant headwinds to the US tech investment landscape in this rising interest rate environment, the stock price should better reflect that.

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