Jassy Touts Explosive Pandemic Growth In First Investor Letter As Sales Finally Revert In 2021

Amazon CEO Andy Jassy has just released his first letter to investors since taking over as CEO last year. In it, Amazon’s first post-Bezos CEO assesses the company’s growth during the second year of the COVID pandemic, a period of unprecedented growth for the company’s e-commerce operation. In the letter, Jassy revealed that Amazon’s e-commerce business boomed during the pandemic as management oversaw three years’ worth of projected growth in the span of about 15 months.

In last year’s letter, Bezos (in his final missive to investors) promised that Amazon would become “Earth’s Best Employer” as the company struggled to meet its workforce needs amid an unprecedented labor crunch that has persisted to this day. Notably, earlier this month employees at a Staten Island Amazon warehouse voted to unionize in a landmark labor victory that the company is aggressively combating.

In Thursday’s letter, Jassy highlighted a handful of issues facing the company, including the supply chain breakdown, rising fuel crises and ongoing hiring difficulties.

Here are a few key takeaways from the letter:

  • Jassy  noted improvements in the company’s fulfillment network: “We spent Amazon’s first 25 years building a very large fulfillment network, and then had to double it in the last 24 months to meet customer demand.”

  • Rapid sales growth continued through Q1 2021 before slowing during the remainder of the year as COVID restrictions eased and people started venturing out again: “In 2020, Amazon’s North America and International Consumer revenue grew 39% YoY on the very large 2019 revenue base of $245 billion; and, this extraordinary growth extended into 2021 with revenue increasing 43% YoY in Q1 2021. These are astounding numbers. We realized the equivalent of three years’ forecasted growth in about 15 months.”

  • In the early 2000s, it took AMZN an average of 18 hours to get an item through its fulfillment centers and on the right truck for shipment. Now, it takes them just two.

  • Supply chain disruptions caused by the pandemic “were disrupted in ways none of us had seen previously.” They had hoped that the major impact from COVID-19 would recede as 2021 drew to a close, but then omicron reared its head in December, which had worldwide ramifications, including impacting people’s ability to work.”

  • After AWS growth slowed to 30% year over year in

  • 2020 on a $35 billion annual revenue base in 2019, growth re-accelerated to 37% in 2021.

  • AMZN’s growth by the numbers: In 2004, they had 7 fulfillment centers in the US and 4 in other parts of the world. By the end of 2021, that number had grown to 253 fulfillment centers, 110 sortation centers, and 467 delivery stations (which connect its fulfillment centers like waystations for the vans that make deliveries) in North America, with an additional 157 fulfillment centers, 58 sortation centers. Additionally, they had 588 delivery stations worldwide, with a delivery network that grew to more than 260,000 drivers. AMZN Air cargo fleet has more than 100 aircraft. This has represented a capital investment of over $100 billion and countless iterations and small process improvements by over a million Amazonians in the last decade and a half.

  • After starting with the kindle in 2007, Amazon’s devices have grown to include FireTV, Alexa/Echo, Ring, Blink, and Astro (plus the ultimately unsuccessful Amazon phone).

  • Wages: after raising its minimum wage to $15 (2x the federal minimum) the average starting hourly salary is currently over $18. The company offers very robust benefits, including full health insurance, a 401K plan, up to 20 weeks of parental leave, and full tuition coverage for associates who want to get a college education.

Here are the components of Amazon’s approach:

  • Hire the Right Builders: We disproportionately index in hiring builders. We think of builders as people who like to invent, who look at customer experiences, dissect what doesn’t work well about them, and seek to reinvent them. We want people who keep asking why can’t it be done? We want people who like to experiment and tinker, and who realize launch is the starting line, not the finish line.

  • Organize Builders into Teams: That Are as Separable and Autonomous as Possible: It’s hard for teams to be deep in what customers care about in multiple areas. It’s also hard to spend enough time on the new initiatives when there’s resource contention with the more mature businesses; the surer bets usually win out. Single-threaded teams will know their customers’ needs better, spend all their waking work hours inventing for them, and develop context and tempo to keep iterating quickly.

  • Give Teams the Right Tools and Permission to Move Fast: Speed is not pre-ordained. It’s a leadership choice. It has trade-offs, but you can’t wake up one day and start moving fast. It requires having the right tools to experiment and build fast (a major part of why we started AWS), allowing teams to make two-way door decisions themselves, and setting an expectation that speed matters. And, it does. Speed is disproportionally important to every business at every stage of its evolution. Those that move slower than their competitive peers fall away over time.

  • You Need Blind Faith, But No False Hope: This is a lyric from one of my favorite Foo Fighters songs (“Congregation”). When you invent, you come up with new ideas that people will reject because they haven’t been done before (that’s where the blind faith comes in), but it’s also important to step back and make sure you have a viable plan that’ll resonate with customers (avoid false hope). We’re lucky that we have builders who challenge each other, feedback loops that give us access to customer feedback, and a product development process of working backwards from the customer where having to write a Press Release (to flesh out the customer benefits) and a Frequently Asked Questions document (to detail how we’d build it) helps us have blind faith without false hope (at least usually).

  • Define a Minimum Loveable Product (MLP), and Be Willing to Iterate Fast: Figuring out where to draw the line for launch is one of the most difficult decisions teams must make. Often, teams wait too long, and insist on too many bells and whistles, before launching. And, they miss the first mover advantage or opportunity to build mindshare in fast-moving market segments before well-executing peers get too far ahead. The launch product must be good enough that you believe it’ll be loved from the get-go (why we call it a “Minimum Loveable Product” vs. a “Minimum Viable Product”), but in newer market segments, teams are often better off getting this MLP to customers and iterating quickly thereafter.

  • Adopt a Long-term Orientation: We’re sometimes criticized at Amazon for not shutting much down. It’s true that we have a longer tolerance for our investments than most companies. But, we know that transformational invention takes multiple years, and if you’re making big bets that you believe could substantially change customer experience (and your company), you have to be in it for the long-haul or you’ll give up too quickly.

  • Brace Yourself for Failure: If you invent a lot, you will fail more often than you wish. Nobody likes this part, but it comes with the territory. When it’s clear that we’ve launched something that won’t work, we make sure we’ve learned from what didn’t go well, and secure great landing places for team members who delivered well—or your best people will hesitate to work on new initiatives.

Meanwhile, Amazon’s year-over-year sales percentage growth slowed in 2021 to 22%, down from a staggering 38% in 2020.

Operating income climbed to nearly $25 billion.

Interestingly, the company also reported a drop in free cash flow.

Jassy followed up the release of the letter with an interview on CNBC’s Squawk Box where he reviewed many of the same details from the letter.

Read the letter below:

Amazon AR2021 by Joseph Adinolfi on Scribd

Read further at ZeroHedge

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