Amazon’s $48 Billion UK Bet: What It Means for Investors
Amazon’s $48 Billion UK Bet: What It Means for Investors
By:Gus Downing
The company’s new international push fits its game plan of sacrificing short-term margins for long-term growth
- Amazon has announced a £40 billion ($54 billion) expansion into the United Kingdom.
- Historically, the company is willing to allow short-term margins to slide in the pursuit of long-term growth.
- If executed well, this move could bring serious long-term upside.
There’s no question Amazon (AMZN) is the dominant player in e-commerce in the United States. International expansion has been a clear and logical next target for the company for years, and it’s taking a big step in that direction by increasing its presence in the United Kingdom.
From Seattle to Sheffield
Amazon recently announced a plan to invest £40 billion ($54 billion) in the UK over the next three years. The focus is on building new fulfillment centers and delivery stations, as well as upgrading existing AI/datacenter infrastructure and studios.
The company plans to build five fulfillment centers, with four of them fully robotic. It will build or acquire an unspecified number of corporate offices and will work aggressively to expand Amazon Web Services (AWS) in the region.
The investment mirrors Amazon’s previous infrastructure plays in the US from 2016 to 2021, which drove rapid domestic growth in Prime, logistics and AWS capacity. Strategically, this will help Amazon build an even more robust supply chain and scalable digital infrastructure ahead of European competitors like Ocado (OCDDY)and Zalando (ZLNDY).
Growth First, Margins Later
Amazon has a long-standing philosophy of heavy reinvestment. It expands infrastructure first and later unlocks margin and revenue growth. Recent US investments in robotics, AI and fulfillment capacity have increased CapEx by 20% year over year (YoY), while EBIT (earnings before interest and taxes) margin took a modest dip of about 30 basis points.
The UK investment follows that pattern. Short-term margin pressure is likely, but history shows this kind of expansion brings higher long-term operating leverage. Upcoming earnings calls will provide some insight into how much CapEx is tied to the UK rollout and whether it appears to be a long-term commitment or a one-off initiative.
Global Expansion for the Next Leg Up?
From a valuation standpoint, Amazon trades at a forward price-to-earnings (P/E) ratio of about 22x, which is slightly rich given its 15%+ long-term earnings-per-share (EPS) guidance. A successful UK rollout could justify that premium through growth of AWS, moat expansion of logistics and adoption of Prime in new regions.
Keep an eye out for ross-border synergies because UK data hubs and fulfillment centers may also benefit Amazon’s EU operations post-Brexit. Investors should also be privy to UK revenue targets, AWS capacity utilization metrics and Prime membership milestones.
US investors should keep in mind that this is more than an international expansion. This move is a foundational infrastructure play that could unlock long-term upside if it’s well-executed.
Amazon has a massive opportunity here to increase its influence in the world, but it could also be a big hit to its bottom line if the expansion does not go according to plan. Amazon’s next few earnings calls will be pivotal as details about the finances of this expansion continue to emerge.
There’s no shortage of questions left up in the air that will be answered in the coming weeks and months, but one stands out above all: Will you be buying?
Gus Downing is host of the tastylive Network show Risk and Reward. @GainsByGus
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