Shares of Amazon ( AMZN -5.62% ) stock tumbled today on some very curious news: Analyst company J.P. Morgan released a note that named Amazon the bank’s “top internet idea.”
According to J.P. Morgan’s note, the Department of Commerce estimated that fourth-quarter e-commerce sales in the United States were only $257.6 billion, which was below J.P. Morgan’s own prediction of $270 billion — which sounds like bad news and may have spooked investors.
Firstly, J.P. Morgan notes that while part of the decline in e-commerce spending was due to a “continued resurgence of brick and mortar retail sales,” which may indicate a shift in consumer spending away from Amazon, the “ongoing supply chain headwinds” were also a factor, and those will subside in time. Long-term, J.P. Morgan still sees a trend toward increased penetration of e-commerce into overall consumer spending.
Second and even more important: While we all quite naturally think of Amazon as an e-commerce company and an online merchant. So as time goes on, e-commerce is becoming less and less important to Amazon’s profits.
Fact is, according to the latest data from S&P Global Market Intelligence, Amazon now gets an astounding $18.5 billion of its operating profits not from e-commerce, but from Amazon Web Services cloud computing. That’s 74% of Amazon’s profits — nearly three times as much profit as the company makes from e-commerce.
For a mega cap like Amazon, even their long-term performance has been extraordinary. Some investors think that in crises “the strong get stronger”, and while it is not a rule, it does ring true for Amazon. In the last 5 years, Amazon.com, Inc. has increased its revenue by 245.5%, going from US$136b in December 2016 to US$469.8b in December 2021. Viewed in that light, Q4’s national e-commerce revenue “miss” looks less like a mortal threat to Amazon and more like a rounding error.