BREAKINGVIEWS-Amazon superstore becomes harder to justify

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Saba

NEW YORK, Feb 6 (Reuters Breakingviews) - Amazon.com AMZN.O made a success of selling virtually everything online, but its superstore business model is becoming less compelling. The e-commerce giant competes with Microsoft MSFT.O in the cloud, Walmart WMT.N in retail, and Meta Platforms META.O and Alphabet GOOGL.O for advertising revenue. Throw artificial intelligence in the mix, and it’s even harder to be dominant in so many areas.

Each division is doing well individually, evidenced by the latest quarterly figures. The $2.5 trillion company led by Andy Jassy reported on Thursday that the already hulking top line got 10% bigger, reaching $188 billion, during the three months ending December 31 from the same span a year earlier, with a jump in operating margin to more than 11% from less than 8%. Amazon Web Services and advertising sales each grew by nearly a fifth.

Stacked against its biggest competition, however, the picture is less rosy. Microsoft’s and Alphabet’s respective cloud businesses each grew by around 30%. And Microsoft also invested twice as much in AI as Amazon between 2011 and 2024, according to the Center for Security and Emerging Technology research outfit. The gap with Alphabet is even wider.

When it comes to advertising, Amazon is a relative newcomer. It managed to outpace the owner of Google and YouTube on Madison Avenue in fourth-quarter sales growth, but lagged the 21% generated by Mark Zuckerberg’s social media giant.

Then there is Walmart, whose chain of brick-and-mortar stores was considered a hindrance when online shopping started to swell. Over the past year, however, the retailer’s share price has outperformed Amazon’s by double.

As battles intensify against deep-pocketed foes on multiple fronts, Amazon’s premium valuation keeps eroding. Despite the robust 38 times forecast earnings for the next 12 months, according to LSEG, it’s down from more than 60 times a couple years ago and closer to where its peers trade. It suggests that keeping everything under one roof as a digital conglomerate makes less sense. Everything is not always what it seems.

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CONTEXT NEWS

Amazon.com said on February 6 that its fourth-quarter operating income increased 61%, to $21.2 billion, from a year earlier on a 10% rise in revenue, thanks to a strong holiday season.

The company’s shares fell 3.5% in after-hours trading.

Sales at Amazon Web Services, its cloud computing division, grew 19%, to $28.8 billion, falling just short of what analysts were expecting, according to LSEG.

Advertising sales rose 18%, to $17.3 billion, also a bit less than was anticipated.

(Editing by Jeffrey Goldfarb and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on SABA/jennifer.saba@thomsonreuters.com))