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Amazon: Strong Dollar Takes a Toll on International Operating Margins

According to the e-commerce giant, the strong dollar brought $231 million in “unfavourable impact” to international operations within the $1.7 billion loss for the quarter

Amazon
July 29, 2022 | 01:44 pm

São Paulo — Amazon (AMZN) reported sales results that pleased investors and sent shares soaring on Thursday. But shareholders questioned the profitability of the US e-commerce giant’s operations in international markets. Amazon said there is a relationship between the weak sequential margin in the quarter with foreign exchange and the strong dollar.

David Fildes, director of investor relations, explained that “there’s a foreign exchange exposure there on that segment with the operating income, that’s included in there about $231 million of unfavorable impact to that segment included in that $1.7 billion loss for the quarter.”

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Amazon is not that big in Brazil, yet. While in the U.S. Statista pools sources that point out that Amazon had nearly half of the e-commerce market in 2020, in Latin America, Mercado Libre (MELI) had more than 50% of all traffic of the top 10 e-commerce companies in the region, according to a Beyond Borders 2021/2022 study by fintech Ebanx with data from Similarweb. According to the latest report, Mercado Livre, OLX and Americanas were ahead of Amazon in terms of online traffic in Latin America.

Even with losses, Amazon continues to invest in emerging markets. Recently, the company bought part of the last mile logistics startup Total Express in Brazil. In April, Amazon announced the expansion of its logistics structure to deliver products in up to two days and the arrival of same-day shipping to five additional cities in Brazil.

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About the losses, Fildes justified that Amazon’s operation is still new in many countries like Brazil, India, and Middle Eastern countries.

Amazon began operating in Brazil by selling its digital books and Kindles in 2012, but it was only in 2017 that the company started selling assorted items. The first distribution center was only launched in 2019, and in 2020, Amazon opened four new distribution centers in Brazil.

In 2021, around 11% of the total online shopping volume in Latin America came from international transactions, according to AMI (Americas Market Intelligence) data released in Ebanx research.

AMI estimates that last year the international e-commerce market in Latin America totaled $33 billion, a 41% jump from 2020.

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According to the study, in some Latin American countries, such as Mexico, Colombia, and Chile, international online sales grew far more than domestic e-commerce. In Mexico, the second largest country in the region and where proximity to the U.S. encourages cross-border trade, the jump was 59% in 2021 -- compared to 28% for local e-commerce.

In Colombia, the increase was 45% (versus 15% in domestic sales), and in Chile, 37% (up from 23% of the local market), according to Ebanx’s research with data from AMI.

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Amazon’s investments in emerging markets: Prime Video and infrastructure

Fildes explains that these new countries, Amazon will improve the profitability of the business as it builds stronger customer relationships and works on cost structure and how it serves people. “In our emerging locations, there’s a healthy amount of investment we’ve made to drive expansion, and we expect to continue to do that because of the strong competition in many of these markets,” he said.

Within those investments is Prime Video. Amazon said it is looking for local language content opportunities that “resonate with customers and can be a significant reason for people to sign up for the Prime program, engage and renew,” according to Fildes.

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“We’re also investing in infrastructure, depending on the regions and the type of local structure, whether it’s building payment facilities, third-party transport services, and, even in some cases, internet and telecommunications infrastructure. So we are playing a role along with others,” he said.

“It’s not just us investing in ways to create and enable that infrastructure to be successful. So those are some of the opportunities and challenges that when you think about where we are in the US versus internationally, there are complexities in the network,” he said.

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Fildes also said there are some regulatory hurdles and other differences in operations in emerging markets, but Amazon believes it’s important to continue to invest in those opportunities and learn not only from what the company has learned in the US but use the international operation to keep the wheel turning and serve customers more efficiently.

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