Dive Brief:
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Amazon’s retail sales growth is slowing this year. Its Q2 online store sales rose 4.6% year over year to $55.4 billion, with physical store sales up 3.6% to $5.2 billion, compared to last quarter’s 7% growth online and 6.3% growth in stores.
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Growth in its retail-adjacent services was more robust: Ad revenue rose 19.5% year over year to $12.8 billion; subscription revenue rose 9.8% to $10.9 billion; and third-party seller services revenue rose 12% to $36.2 billion.
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On a conference call Thursday, analysts and Amazon executives focused mostly on AWS. Including the cloud services unit, net income in the period doubled year over year to $13.5 billion.
Dive Insight:
Amazon’s AWS unit has long been its reliable money-maker, and CEO Andy Jassy on Thursday said the business is enjoying new catalysts, including the rise of AI and a pandemic-accelerated shift at more companies toward leveraging the cloud.
The success of that and other services is helpful to Amazon’s retail operations, analysts said.
“Solid growth and profitability of AWS and media/advertising should continue to outperform the company average and support Retail,” Telsey Advisory Group analysts led by Joe Feldman said in a Friday client note.
The retail business itself is a little rougher. Jassy said the company’s “continued faster delivery speed is earning us more of our customers' everyday essentials business,” noting that Prime delivery speed is “faster than ever before, with more than 5 billion units arriving the same day or next day.” But he also said that items like televisions aren’t selling as well as consumers shun higher-priced purchases.
The e-commerce giant also appears to be losing some market share on the budget end, to marketplaces like Temu and Shein, according to GlobalData research. That has reportedly prompted Amazon to consider launching a similar direct-from-China marketplace, an understandable move, according to GlobalData Managing Director Neil Saunders.
“However, we also see some risks in terms of alienating non-Chinese sellers and cluttering the site if this plan isn’t executed properly, and with a degree of separation from Amazon’s main offer,” he said in emailed comments. “This will be a very fine balancing act for Amazon, but it is right to address.”
Margins are also under pressure in some metrics on the retail side, but Jassy said that regionalizing distribution centers is paying off in terms of both speed and costs.
“We have the opportunity to expand the margin in our stores business. And as I've said on a number of the calls that we've done, it's not going to happen in one quarter, it's not going to happen in one fell swoop, it's going to take work over a long period of time,” he said. “But I think that one of the silver linings, if you will, about a year and half ago in the ricochet of the pandemic — and all the growth that we had and the cost-to-serve challenges that we had — was that it really forced us to reevaluate everything in the network.”
