Amazon is not the 'efficient model' we once thought: Tech Analyst

Technalysis President and Chief Analyst Bob O'Donnell joins Yahoo Finance’s On The Move to break down the latest tech earnings from Apple and Amazon.

Video Transcript

ADAM SHAPIRO: Right now, we want to invite onto the program the Chief Analyst and President at TECHnalysis, Bob O'Donnell. He's joining us to talk about these tech earnings that we are keeping an eye on.

And Bob, it's good to have you here.

BOB O'DONNELL: Thanks, Adam.

ADAM SHAPIRO: The tech companies were strong going into COVID-19. They appear to be getting stronger.

BOB O'DONNELL: Well, absolutely. And, you know, what we're seeing is they have, sort of, an immunity, shall we say, to COVID-19, is what these earnings seem to suggest. And, you know, we've all, those of us who watch tech closely for a long time, have known the level of influence that these companies have had on us and our entire society.

But I'm not sure everybody recognized that, until now. And now we're really seeing this, because all the things we're doing to communicate, entertain ourselves, to get food delivered to us. All of this is being driven by tech products and services

And so the influence that these companies have, I think people are starting to just really grapple with, or recognize. And, you know, what's interesting is, because it's so important, they are able to survive reasonably well here. Albeit with some challenges, as we saw with Amazon, for example.

DAN ROBERTS: Bob, Dan Roberts, here. Let's stick with Amazon. Julie Hyman mentioned, the company warning about that $4 billion that would normally be profit, that it's going to be spending, because of coronavirus stock dipped a little bit on that.

But are investors going to be able to be patient, and withstand that? Especially knowing that Amazon's sales are fine, and revenue is up, because then people ordering things.

I mean, it, actually, hearkens back to a time when, for so many years Amazon was not profitable, and the stock did fine, and people were very patient. Finally it achieved profitability. Maybe for a year, or however long it is, it loses a lot of that profit that people have come to expect.

But, you know, maybe people will have the patience to bear that.

BOB O'DONELL: I think they will. And you brought up exactly what I was going to bring up. Which is let's remember the history of Amazon, in terms of profitability and some of the challenges there.

You know, they did go through a very long period where they just said, look, profit's going to be coming. And then they finally got there, and yeah, now they're pulling back.

But it's clear, obviously, that so many people now rely on Amazon for so many things, at the same time. And the numbers reflect this.

We're also seeing that, even though a lot of people think of it as this complete model of efficiency, clearly it's not. And those of us who've been using it more lately, probably recognize this, right? I mean, I recently made an order online of like nine items, and it showed up in eight separate shipments. And some of them came the same day. It's like, that's clearly not an efficient model.

So I think we're going to see a lot of tweaks to that model. And look, to their credit, they've faced a lot of challenges, and they've recognized, we're going to have to take that money from next quarter, and spend it on things are going be important for our employees. But long term, they're absolutely fine.

AKIKO FUJITA: Bob, Cloud has clearly been a big growth driver for all the big tech names. AWS [INAUDIBLE] $10 million yes, significant, but we saw the growth slow. How much of that has to do with other names, like Microsoft coming in, and taking market share? It seems like, you know, given the companies digitizing, because of the stay at home measures, you would think that growth would accelerate

BOB O'DONNELL: Yeah. And remember, it did, but you're absolutely right, in terms of it's a competitive play, I think, is what we're seeing here. Because the, as your numbers from Microsoft, the Google Cloud numbers from alphabet/google were higher, in terms of percentage.

But also remember, Amazon is the biggest. So we got a little bit the law big numbers, here, going on. Whereby the absolute dollars they added were likely higher than the absolute dollars that the other guys added. But, as a percentage, it was slower. I think we are seeing a much more competitive market.

But in general, Cloud is one of those areas, in fact, that is really moving forward in this economy. And because we've got a lot of big companies, not just the online services that we're all familiar with, like the Netflix is and everybody else that use the cloud infrastructure.

But regular businesses now are recognizing, we've got to move more of our applications to the cloud. That's going to take years, and years, and years. So there's a lot of strong growth opportunity across the major cloud providers, over the next few years, I believe.

JULIE HYMAN: Bob, it's Julie, here. I would ask about the law of large numbers, when it comes to Amazon's retail business also. And just a quick anecdote, here. I belong to an email list of parents at my co-op, and there was an email that went around today, about the strikes that are occurring among Amazon workers today, as well as workers at some other retailers.

And one of the parents wrote and said, don't give your money to these various companies at the moment, because until they meet the worker demands.

But I imagine that's still quite the minority view, I wonder, though, if you view that as a threat, at all.

BOB O'DONNELL: I don't view it as a long term threat. It certainly is something they have to recognize. And I think the fact that, you know, Bezos made that statement. But, you know, about hey, if you're an Amazon investor, take a seat.

I mean, that was a pretty bold statement, it got a lot of play, and understandably. So I think they recognize the seriousness of it. We can I'll argue a little bit about the math exact method by which they're doing some of these things, but they're clearly reacting to challenges that they're facing. And I think, in the long run, that's going to serve them well, it's essential.

You know, the other thing to point out is, Amazon is hiring hundreds of thousands of people, in a time when people millions of people are losing their jobs. All of a sudden, there are opportunities in other places. But that's going to lead to this kind of radical shift in the employment in the US, even more strongly, I should say, towards tech based companies.

ADAM SHAPIRO: Bob, I want to turn to something that broke before we came into the stream. And that is the fact that the House Judiciary Committee wants Jeff Bezos to testify, once again, in front of Congress, about Amazon's, perhaps, lying to Congress about their private label strategy [INAUDIBLE] use third party data. Is this going to have a big impact on Amazon?

BOB O'DONNELL: Well, I mean, it certainly doesn't look good. I don't know that it has a big impact. It's certainly going to have an impact. I mean, Amazon, over the years, has, in fact, building up their private brands, just as we've seen other major retailers do that too. I mean, you know, whether it's Walmart, or Target, or any other place.

All these large retail organizations end up doing their own brand. So it's, you know, obviously, a logical move for Amazon to do. The difference, of course, is Amazon has access to a lot more data. And, theoretically, there needs to be sort of a church and state wall between that. And they claim there was, and now, perhaps, there wasn't.

So but look, it could be just a few people inside the organization, who took advantage of data that they shouldn't have. I don't think it reflects on the whole organization. But I think it's got to be addressed, they've got to be open about it, and they've got to deal with it. And because they've got to maintain trust among their customers.

That's what all these tech companies, I think, are working on in general is, how do they leverage, you know, a very bad situation in a positive way, and regain the trust of some consumers, and other people for whom they started to question the tech companies.

ADAM SHAPIRO: Bob O'Donnell is the President and Chief Analyst at TECHnalysis. We appreciate you joining us.

BOB O'DONNELL: Thanks, Adam.

ADAM SHAPIRO: Stay well, my friend.

BOB O'DONNELL: All right, you guys, too. Take care.