Amazon India: Resilience Amidst Regulatory and Market Shifts

In its latest report, Barclays (LON:BARC) provides a detailed analysis of Amazon (NASDAQ:AMZN)'s performance in India, highlighting both challenges and growth opportunities. Despite facing a slowdown in certain segments, Amazon India remains a significant player in the country’s burgeoning e-commerce market.

According to Barclays, India's overall e-commerce gross merchandise value (GMV) is growing at around 20%, with government estimates pegging it at approximately $120 billion. Amazon holds just under 30% of this market. However, tax filings for the fiscal year ending March 2023 indicate that Amazon India’s B2C revenue grew by a modest 3% year-over-year (y/y), a notable deceleration compared to the pandemic-boosted years.

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Amazon Web Services (AWS) continues to be a strong performer in India, generating $1.6 billion in revenue with a 43% y/y growth, even after a high 66% y/y growth in the previous fiscal year. Conversely, Amazon Pay’s revenue grew by only 5% y/y to $260 million, down from 17% in the prior year, indicating a loss of market share to other payment options.

Barclays estimates that Amazon India’s GMV for FY23, excluding B2B transactions, stands at around $18 billion, with an overall GMV of approximately $21 billion when including all business segments. This represents a 3-4% decline in USD terms, attributed to the continued reduction of the wholesale business following regulatory changes in 2019.

Amazon India accounts for 4.8% of Amazon's international retail revenue but also 11% of its international operating income losses. For calendar Q1 2023, India generated $5.6 billion in revenue (up 1% y/y) and incurred $0.9 billion in pre-tax losses. Notably, Amazon has significantly reduced its total international operating income losses, with a substantial decrease from -$7.7 billion to -$0.5 billion year-over-year, thanks to cost-saving measures in mature international markets outside India. Barclays expects the operating income in India to stabilize without much fluctuation in the future.

Government data suggests steady e-commerce growth in India at around 20% for 2024, consistent with last year, potentially reaching just over $120 billion in GMV. Other estimates, such as the Google-Tamasek-Bain study, suggest a lower figure, but Barclays relies on IBEF data for its global e-commerce industry model.

India's per-capita e-commerce spending is still significantly lower than in Western markets due to lower income levels, but the trend is improving. A recent Google (NASDAQ:GOOGL) study projects India’s B2C e-commerce GMV to grow at a 26% compound annual growth rate (CAGR), driven by a growing online shopper base and increasing per-capita consumption. Improvements in digital infrastructure and increasing digital-first habits among Tier 2+ populations are also contributing to this growth. However, challenges remain due to low population density and diverse consumer profiles in these areas.

A Nielsen study commissioned by Amazon India reveals that Amazon.in is the preferred shopping destination for 68% of consumers during the annual festive season. Over 78% of consumers trust online shopping, with Amazon.in identified as the most trusted and convenient online brand.

In summary, despite regulatory challenges and market slowdowns, Amazon India demonstrates resilience with significant market share and steady revenue streams in AWS. The company's strategic focus on digital infrastructure and consumer trust continues to position it well in the evolving Indian e-commerce landscape.

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