The COVID-19 pandemic was many things. Global contagion. Health catastrophe. Herald of new geopolitical tensions and a long-running commentary on how far we’re willing to go to protect — or not — our fellow humans. It was also a business earthquake that shook up most industries around the world.
But as quickly as COVID came on the scene, breaking supply lines and business models, it also faded. In the wake of most of the world learning to live with — or merely deciding to endure — the health impacts of the pandemic, many industries snapped back to their prior form. Airlines went from trash to first class; in contrast, tech companies flipped from darlings to disparaged.
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Some tech concerns picked up tailwinds during COVID, in that a newly reformed business climate helped them grow for a time. You can cast a wide net here: Robinhood exploding in part thanks to consumers stuck at home with more cash than usual, Instacart seeing explosive demand for its grocery delivery service. Some tech companies went the other way, as was the case with Airbnb’s business cratering during the early COVID months as going places went from aspirational to insane overnight.
Since the return to what passes as normalcy, the businesses impacted initially by COVID have charted diverging courses. Robinhood lost some of its shine as its user base, per the usually chatted narrative, went back outside. Instacart saw its growth slow but managed to hold onto its pandemic-era gains.
Airbnb, an early example of the layoffs that COVID could induce at erstwhile healthy companies, recovered, and has retained much of its value since going public, a rare feat for its IPO cohort.
E-commerce-related companies generally saw strong growth during the pandemic. That success attracted money. Investors, stoked by what appeared to be a new economic reality, poured capital into companies from Shopify to humble startups, hoping to capture a piece of a new future. It turned out, however, that e-commerce growth was more Instacart than Airbnb; now slower, but still extant.
Thankfully for a great number of companies, e-commerce doesn’t appear to be following the Robinhood trajectory. (Yet, at least; with a possible global recession looming, that could also change.)
Today we’re taking a look at a grip of e-commerce earnings results to get a handle on the new e-commerce reality. There’s good news to be had and bad news aplenty. To work!
Quantifying the slowdown
From a Western-centric perspective, Amazon is the company to monitor to take the pulse of e-commerce. Well, Q3 news isn’t exactly brilliant: Both its operating income and its net income decreased year on year, respectively from $4.9 billion to $2.5 billion and from $3.2 billion to $2.9 billion.
But Amazon is both an e-commerce and cloud giant, so let’s look at the Q3 2022 revenue breakdown, too:
- North American e-commerce: $78.8 billion in revenue, -$412 million operating profit
- International e-commerce: $27.7 billion in revenue, -$2.5 billion operating profit
- AWS: $20.5 billion in revenue, $5.4 billion in operating profit
Adding to the above, the company’s North American results grew by 20% year over year, which is pretty solid. But its international e-commerce sales actually fell 5% over the same time frame, and both categories grew more slowly than its cloud computing business. In other words, the e-commerce results aren’t great, whether compared to the cloud side of the business or to Q3 2021. Especially keeping in mind that Q3 2021 was already showing signs of a slowdown. (In the year-ago quarter, both domestic and international e-commerce results at Amazon grew.)
Shopify, meantime, grew 46% in the year-ago Q3 period. That figure slowed to 22% in the most recent quarter.
The world isn’t just the West, though, so let’s look at what’s been happening at major e-commerce companies in Asia, starting with two Chinese giants: JD.com and Alibaba.
JD.com reported better-than-expected earnings for Q3 2022, and its stock rose as a result. The company also said that its “net quarterly revenue rose more than 11% from the prior year to 243.5 billion yuan ($34.2 billion).” JD.com grew by 25.5% in the year-ago quarter, another indicator of growth deceleration.
However, Alibaba missed analysts’ expectations for revenue growth, Barron’s reported. The company beat earnings forecasts, but its sales rose just 3% from a year ago. (In Q3 2021, Alibaba posted whole-company revenue growth of 29%.)
China has been an outlier in its recent handling of the pandemic, though, so let’s add another data point from another continent with Jumia.
The African e-commerce giant has been on a different trajectory than its global peers in 2022: Its Q1 was pretty solid, and its Q2 was arguably good. During Q3, despite some shadows, it made “some progress toward breakeven.” But all things considered, it might well be the exception that confirms the rule.
Slowdowns? Layoffs.
It’s worth noting here that the above companies likely didn’t expect their growth to decelerate as much as it did. We can infer that fact from the share price appreciation that many e-commerce companies enjoyed during the online shopping boom; investors didn’t value Shopify so mightily because of its trailing results, or not entirely, but thanks to their optimism that it could keep growing. (The company’s incredible trailing results, of course, have not been enough to keep its value where it once was.)
Everyone thought that e-commerce growth would continue at a new, faster pace. It just turned out that we were seeing, at best, a demand pull-forward more than a new demand growth curve. This is not a massive sin — getting lost in the hype of a changing market is part of what makes us human and is the underlying generator of bubbles since time immemorial. (Again, if the global economy does enter a general recession, the ability of e-commerce companies to hold onto past growth could come into question.)
But we can’t simply shake our heads ruefully at another example of our species’ hubris. Instead, there is a real human cost to the matter. Folks are losing their jobs, sometimes in a long-term rolling fashion. Amazon’s layoffs appear to be a process that could take quarters to complete. Jumia is cutting staff (including its co-CEOs!). Alibaba has cut five figures worth of staff. JD.com also underwent massive cuts. Hell, even Shopify has had to lay off folks.
Some e-commerce companies are pursuing new markets, which could help them grow faster than their core market. We’ll have to see how that work bears out, but it’s only required because of the trends we’re discussing today.
The e-commerce growth slowdown is two stories. The first is a business story, one that includes fortunes built and lost, teams built and taken apart, hopes raised and dashed. Then there’s the more personal side of the matter. A huge amount of time went into building for a future that didn’t quite show up. It’s easy to dismiss the excitement as harmless. It isn’t for the folks currently looking at bills that they may no longer be able to pay.
Such are the vicissitudes of capitalism. Or capitalism fueled by an artificially low cost of money, coupled with tectonic, if temporary, aberrations to normal business conditions. We may not see another disruption of similar scale in our lifetimes. But if we do, perhaps we can hold onto these e-commerce lessons the next time around.