Well, we were gonna two on the story that we've been talking about all morning that we're Amazon's results and the shares jumping after the company give a strong sales forecast. Joining us now to discuss this further is Punamgoyle, Senior US e Commerce and retail analyst at Bloomberg Intelligence. Good morning to you. So, of course, earlier this week we heard Walmart slashing its earnings outlook for the second time this year. Now Amazon giving a strong sales forecast. How
should we read these divergent results in the retail space? Hi, thank you, sure so, absolutely so. When walmart is showed weaker guide in for the second time earlier this week, we we had said that there were two different reasons really, and you can't really read that across to Anazon. The primary reason for Walmart's revised lower guidance was because the customer was trading into lower margin categories, essential categories like food.
Keep in mind, walmart customer is a lower income household, so they feel the pressure of inflation and the rising gas prices hits there. Walic directly, where Amazon's customer base is more affluent, so they have more spending power than a Walmart customer, and I think that's why you're seeing a difference in the guidance. Amazon noted on their call that consumers are spending, they are spending more and Prime Day was a huge success, so that the consumers still spending,
so they were able to raise prices. Uh and and and that's even on consumers because as you say, consumers, Amazon, consumers are at the higher end. Are they able to raise prices? Well, I guess my question on the cloud is is that primarily an enterprise play or is that also somewhat touched by consumers? And can they raise prices there?
It's an enterprise, it's an enterprise play at the moment, and there's plenty of room to grow the cloud business for the decade to come and also increase operating margins there. Keep in mind, the cloud business is very, very profitable, sitting in north of profit margins. Um this quarter was a little light at twenty nine percent, but that was largely due to stock leased compensation and investments to feel
the business. Over time, we see that business scoring to forty percent operating margins, and I think it will remain enterprise for a while. There's plenty of room to run that business forward and lead in the cloud category. So what would be the biggest risk to Amazon right now? I mean we're still in a potential recessionary environment. Prices are still running hot, in place is still hot. What
would be the biggest challenge right now to Amazon? Yeah, I think I think a recession is still a risk, right, the potential a recession if we do enter a recessionary period, consumer spending slows across the board, irrespective of what in conspectrum you come from. The other is execution. So in the quarter they actually showed better expense control. In fact, they estimate for three Q that they could save one point five billion dollars and expenses, which they will reinvest,
but it's still a saving. But I think execution is really key across fulfillment. They can't do anything about rising costs, right Everyone is dealing with it. Whether it's fuel costs which have come down a little, whether it's wages or even energy costs bill they're hitting everyone equally, and um, it's it's just something that you have to weather by either raising prices or by absorbing and finding efficiencies elsewhere,
which Amazon has done a little of both. Right, we saw the prime membership go up earlier this year, and they are also planning to raise it internationally in Europe um later this fall. It's curious though, because Amazon stock has performed pretty poorly this year. It's down more than the spink. The stock is still down even after the rally today about or so, what's the main driver of that.
It's slowing online sales gains. Right, So if you think about where we were through the pandemic, most online retailers saw a surgeon demand and growth rates were essentially through the roof. Now that growth rate wasn't going to stay at those levels um. As savvy investors, you would know that there will be a moderation. But I think if you look at the near term, there's there are still challenges and we cited some of them before with the
margin of potential recession and those exist. But I think if you look at the business longer term, Amazon still has a ton of opportunity to grow, and it's across the board. Even in online we see three P driving their growth. We see three P sales doubling um over the next five years, and we also see plenty of growth in very very early stages. Today. The Clowd business, the advertising business, the media business, and the latter businesses
that I mentioned. They're very, very profitable. In fact, the WUS generates two thirds of profits. All right, putam unfortunately out of time, but thanks very much, Putham Goil, Senior US e Commerce and retail analyst at Bloomberg Into Elligence, helping us better understand Amazon. This is Bloomberg