Over the past few days, E-commerce giant Amazon (NASDAQ:AMZN) has announced its decision to exit three ventures in India – its wholesale distribution offering, food delivery business, and an online learning platform. The company is shutting down these non-core businesses in India as part of its efforts to cut costs and focus on core businesses, like e-commerce and Amazon Web Services (AWS).
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Amazon to Exit Non-Core Businesses in India
On November 24, Amazon announced that it is closing down its online learning platform Amazon Academy, which helps high school students prepare for competitive exams. Amazon Academy, launched in early 2021, faced intense competition from local e-learning platforms like Byju’s, Toppr, and Unacademy. Even the local players announced layoffs earlier this year due to harsh macro conditions.
The company is also discontinuing its food-delivery service Amazon Food, which was being tested in Bengaluru, a southern Indian city. A company spokesperson told Reuters, “As part of our annual operating planning review process, we have made the decision to discontinue Amazon Food.” The food delivery business in the country is dominated by players like Swiggy and Zomato.
Furthermore, Amazon has decided to shut down its wholesale distribution business Amazon Distribution. This platform distributed fast-moving consumer goods to Kiranas (small shops) and other neighborhood stores. Amazon Distribution operated in only three cities in Southern India and faced competition from Flipkart Wholesale and Reliance Industries-owned JioMart.
Macro challenges have pushed Amazon and other tech giants to cut costs and improve productivity. Amazon is reportedly laying off about 10,000 employees and reviewing unprofitable businesses.
Amazon Focused on India Despite Pressures
India is a key overseas market for Amazon, with significant opportunities to expand further. However, the company has been facing challenges in the country, including intense competition from well-established local companies and an unfavorable regulatory environment.
According to a recent report by research firm AB Bernstein, the EBITDA (earnings before interest, tax, depreciation, and amortization) margin of Amazon’s Indian operations is still about minus 5% to 10%. Such margin levels are concerning, given that the e-commerce giant has invested more than $6.5 billion in the country over the years.
In this scenario, Amazon’s decision to exit non-core ventures seems prudent. The company can now focus on its e-commerce, AWS, and other rapidly growing businesses in India. Recently, Amazon announced its second AWS region in India at Hyderabad, Telangana (first is in Mumbai). AWS will invest more than $4.4 billion in the country by 2030 amid growing cloud adoption.
Is Amazon a Buy, Hold, or Sell?
Amazon earns Wall Street’s Strong Buy consensus rating based on 33 Buys and two Holds. The average AMZN stock price target of $140.18 implies 46.8% upside potential. Shares have plunged nearly 43% year-to-date.
Conclusion
Amazon’s decision to discontinue its non-core businesses in India will help it focus on high-growth divisions and improve its profitability. The company continues to invest in growth areas, like cloud computing, and capture the long-term potential in the lucrative South Asian market.
