My favorite dialogue across Television and Movies is from Star Trek’s Captain Kirk, on board the U.S.S. Enterprise saying, “Space: the final frontier. These are the voyages of the starship Enterprise. Its five year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no one has gone before.”
In the real world, I can almost imagine “Captain” Jeff Bezos across the U.S.S. Amazon saying “E-Commerce the final frontier. These are the voyages of the starship Amazon. Its continuing mission: to dominate the e-commerce world, to seek new markets, to boldly go where no one has gone before.”
Now think of Bezos, on board his rocket star ship Amazon, ready to invade and own the Inter Galactic Business of E-Commerce!
This is WHY!
Consider the latest earning results and presentation of Amazon’s Q2 2016 results shared by the Company on the 28th of July 2016.
Let me walk you through 5 select slides to prove why Amazon is destined to become the unchallenged conqueror of the e-commerce world:
1. Let’s start with the most important ‘Ammunition’ required in the E-Commerce business in the world – CASH.
Check out the FREE CASH (read cash that Amazon is generating via its business NET of all investments in machines, property, and lease payments)
Want more granularity of these numbers? Sure!! Go ahead…. Help yourself!
For sake of comparison, consider the Red arrow I have placed against Q2 of 2015 and the Blue arrow for Q2 quarter of 2016 (which is being analysed!)
The numbers ARE STUNNING! While last year, Amazon had a negative $US 500million Cash flow, this quarter it has generated $US 2.5 BILLION free cash – in JUST ONE quarter.
To understand the perspective of this – The largest financing of Flipkart was 1.0 billion dollars before its tumble and fall (valuations and market share). Amazon is generating 2.5 times A QUARTER what Flipkart received once in its lifetime!
Takeaway: The MOST important component to fight bloody e-commerce wars is Cash and Amazon is spewing it out like hot lava from a volcano!
2. Looking at this stunning picture again, (this picture is prettier than Van Gogh’s Sunflowers to an accountant like me), the question you should be asking is – “HECK!! What on earth is Amazon doing to generate this kinda cash?”
Now that’s a 2.5 Billion dollar question whose answer will stun you!
Amazon’s AWS (Amazon Web Services) Business division is the secret!!
AWS is the cloud based service that Amazon has developed as the best available global solution for small to large to largest clients (Apple included) to host their Internet sites, apps, etc and completely reduce the stress of hosting, server management, etc.
Honestly, the AWS business is like an OIL WELL that has sprung up right in the middle of Amazon’s E-Com Jungle and it’s spitting out free money.
Check the Blue and Red arrows to figure how FAST the AWS Business is growing (Revenue) and most importantly how profitable (Operating Income) that piece is!!
If AWS is spilling out US$ 700 million a Quarter which is growing almost 100% YoY, you can do the math to understand how that is going to completely spiral out of control in terms of massive profitability in the next few quarters to come!
Takeway: Amazon is generating direct PROFITABILITY aka Cash via a Business Stream that is NOT e-commerce related and in which it has no worthy competition on the planet. It’s an advantage only Amazon has for itself in the e-com world!
3. Now, if we were to consider the overall operating income of Amazon there is another big jaw dropping surprise:
Compared to last year, the Amazon Business has become 1.77 TIMES more profitable (Operating Income) and that explains the mountains of Cash Flow Amazon is generating.
Takeaway: In short, even while AWS is a non-core, non-e-com business, this consolidated operating income slide proves that Amazon is making lots of extra money from its regular business!
4. So what would this mean for the rest of the e-com Companies out there?
If I were one of them, I would be very very scared…
Check out these two slides:
Amazon is minting money in its home market USA while improving its margins year on year (calculate margins if you are interested). At the same time, it is merrily losing money in its international markets (India, etc) without too much pain! In the earnings calls as well as in the press notes announcing these results, Amazon’s top executives are exuberant about India, their performance in the market and its newfound market leadership status. Amazon Inc. is going to only invest and double down on India in the quarters to come!
Takeaway: Juicing its home markets while losing money abroad is now part of the Amazon DNA and there is no changing that strategy. This only spells doom to e-com operators who only make losses and have no AWS to subsidize them!
5. To add to the misery, if this was not enough to send the heebie-jeebies down the throats of the junta e-com operators, the supernova LASER GUN on the Amazon Starship looks like this:
Over the year, there has been NO DILUTION of Amazon equity (as is the case year after year). This has kept Captain Bezos in complete control and has made sure that all the pesky VCs and Investors who have historically created massive trouble for other e-com companies, are out of Amazon completely.
Mega Takeaway: Amazon is a Starship with infinite fuel and speeding ahead at galloping warp speed. It will not just explore but conquer every e-commerce planet in the Milky Way and competing with it would be nothing short of a death wish.
Your comments please?