While Amazon’s revenue from its core ecommerce business declined, the company’s leadership team suggested things might be better than they first appear.
Amazon.com Inc. reported total revenue in the third quarter of $121.23 billion. That’s a jump of 7% from a year earlier and well above the $119.09 billion that analysts had expected. But ecommerce sales continued to decline, falling 4% year over year in a sign that the online shopping may have hit a ceiling of sorts as the pandemic faded.
Amazon cited two booming business units for the rise in revenue: Amazon Web Services and the company’s advertising business.
Amazon Web Services (AWS) saw $19.7 billion in revenue in the most-recent quarter, higher than the $19.56 billion that Wall Street expected. AWS, which provides on-demand cloud computing platforms and APIs on a pay-as-you-go basis, has become the company’s cash cow. It now has 34% of the nearly $55 billion market for cloud infrastructure services, according to data from Synergy Research Group.
Advertising services, another cash cow, saw a 14% rise in revenue to $8.76 billion. The results both surprised and cheered analysts.
“Better-than-expected 2Q results and upbeat 3Q sales guidance shows Amazon is better positioned to weather inflationary pressures and benefits from a more-affluent customer. That’s contrary to Walmart, which is seeing consumers shift to lower-margin categories,” Poonam Goyal, senior retail industry analyst with Bloomberg Intelligence, said.
Amazon is No. 1 in the 2021 Digital Commerce 360 Top 1000. The Top 1000 ranks North American web merchants by sales. It is No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.
Amazon revenue ups and downs
While Amazon revenue from its core ecommerce business declined, the company’s leadership team suggested things might be better than they first appear.
In a call with analysts, CFO Brian Olsavsky said Amazon was not experiencing an inflation-driven drop in consumer spending.
“We have not seen anything yet. We saw demand increase during the quarter and we had a very strong June,” Olsavsky said. Amazon’s optimistic take on inflation stands in contrast to warnings in recent weeks from rivals such as Walmart, Inc. (No. 2 on the Top 1000.)
During the first quarter, Amazon raised its price for its Amazon Prime service in the United States. In the second quarter, it also boosted Prime prices across Europe and imposed a 5% fuel and inflation surcharge on merchants who use its Fulfillment by Amazon service.
Olsavsky defended those decisions during the call with analysts.
“We added that fee grudgingly in May to compensate for some of the inflationary pressures we’re seeing. I don’t want to give you the idea that either of those increases came close to covering our costs,” he said.
Industry observers said the price hikes were to be expected.
“Amazon Prime’s European price hike isn’t surprising after the past year of inflation and labor shortages. While it’s inevitable that some shoppers could discontinue their memberships with a price raise, I’d expect most Prime members to stay enrolled. In our past research, 75% of consumers said faster, free shipping was the top reason for joining Prime. And it was also the top reason for renewing Prime,” said Matt Kates, senior vice president at loyalty solutions provider Clarus Commerce.
Buy with Prime
One of Amazon’s major initiatives in Q2 was the “Buy with Prime” feature’s debut, which lets merchants sell products they list with the ecommerce giant directly from their own websites. The feature is seen as part of a larger effort to blunt the momentum of competitor Shopify Inc.
During the analyst call, Dave Fildes, Amazon’s director of Investor Relations, said the retailer has been pleased with the program and will be “dialing it up for more sellers as the year progresses.”
Looking to Q3 Amazon revenue guidance
Amazon said it expects continued progress in the present quarter.
- Net sales are expected to rise between 13% and 17% in the third quarter from a year earlier, the company said. That would put revenue for this quarter at between $125.0 billion and $130.0 billion, or to grow between 13% and 17% compared with Q3 2021.
- Operating income is expected to be between break even and $3.5 billion. That compares with $4.9 billion in last year’s third quarter.
During the quarter ended June 30, 2022, Amazon reported:
- North America sales of $74.43 billion. That’s up about 10.2% from $67.55 billion a year earlier.
- International net sales dropped for a second consecutive quarter to $27.07 billion. That’s down 11.9% from $30.72 billion a year earlier.
- A net loss of $2.0 billion, compared with net income of $7.8 billion a year earlier. The company cited a $3.9 billion pre-tax write off from its investment in electric-vehicle maker Rivian Automotive, Inc. for the loss.
Percentage changes may not align exactly with dollar figures due to rounding.
Bloomberg News contributed to this report.