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Thursday, December 30, 2021 8:36:32 AM
By: TheStreet | December 30, 2021
• The retail giant lost nearly $1 billion on its international business in its most-recent quarter.
Amazon (AMZN) has always followed a simple business model, albeit one that requires a lot of discipline: Invest money now to build the infrastructure for the future.
That's why the company has never balanced profits and investments in the same way many publicly-traded companies. Founder and Chairman Jeff Bezos always took a long-term view and never managed for the quarter.
In the United States, Amazon has steadily put tomorrow over today when it comes to investing in its supply chain. There were multiple quarters during the pandemic where the company told investors that it planned to spend its profits on building out the capacity it needs for the business it wants to have, not the one it has now.
The company has been doing the same thing on an international level, which led to a loss of $911 million in the most recent quarter. That led to Evercore ISI Analyst Mahaney questioning whether the loss was large "even by Amazon standards," during the company's third-quarter earnings call.
Is Amazon On Track Internationally?
"Yes, you're right, it was a larger loss than in prior quarters," CFO Brian Olsavsky answered.
But the CFO explained that the numbers required some context.
"We had flipped to positive operating income through the pandemic. A lot of that was, again, getting two years of volume growth on top of a one-year, current year cost structure," he said.
Olsavsky also noted that international consists of a wide range of countries and that requires a number of different approaches.
"It's a group that has very different, we're in different stages in different countries," he said. "The established countries of Europe and Japan are further along, obviously, and they perform closer to the North America results. We have new countries we've added a lot in the last few years, the investments in Brazil, the Middle East, Australia, adjacent countries of Poland and Sweden within Europe. So those are all important investments, but they start as an investment, and they, we build over time."
The CFO also explained that Amazon frontloads some of its expenses in its international markets by using Prime Video as a way to capture paid members.
"We find video as a really strong attractor of customers, and it's a gateway to Prime in a lot of those countries. So the model is a bit flipped versus what we saw in North America just because we added video later in the game," he said,
Amazon Wants to Rule the World
While the rest of the world presents its own challenges, Amazon has largely followed the same blueprint it has in the U.S.
That means constantly building out and investing in infrastructure being willing to delay profits. In addition, the company has also experienced some of the same shorter-term issues it has experienced in the U.S.
"So we're, as we said, we're going to make money long term in international," the CFO said. "Right now, it's a bit of an umbrella that catches a lot of different countries in different stages. We're happy with both the established countries. They're also seeing, however, the pressures that we're seeing in the United States on labor cost and disruption from supply chains."
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