Amazon relies on non-commerce business as e-commerce sales fall for second straight quarter

Diving brief:

  • Amazon’s online retail sales, which include in-store grocery delivery or pickup, fell for the second straight quarter, falling 4.3% in the second quarter to $50.9 billion.. Due in part to higher grocery prices, physical store sales rose 12.5% ​​to $4.7 billion.

  • The e-commerce giant’s operating expenses rose 11.9% to $117.9 billion, according to a company press release. That helped push its operating profit down 56.9% year-over-year to $3.3 billion. Amazon recorded another net loss (including a $3.9 billion pre-tax valuation loss from his investment in the EV company Rivian Automotive), this time hitting $2 billion from last year’s net income of $7.8 billion.

  • Amazon offset its e-commerce decline primarily through fees from Prime customers and Marketplace sellers: Subscription sales rose 10% to $8.7 billion, seller services revenue increased by 9.1% to $27.4 billion and ad sales increased 17.5% to $8.8 billion.

Overview of the dive:

Amazon’s retail e-commerce site looks less and less like a retail business and more like the fulcrum on which more lucrative ventures are built. Including its AWS cloud unit and other services, the company’s net sales increased 7% to $121.2 billion.

Its market is growing in importance as third-party sellers accounted for 57% of all units sold on Amazon in the quarter, the highest percentage ever, said chief financial officer Brian Olsavsky told analysts on Thursday. The company is also working on other ways to make money from advertising, including through its streaming services, including Twitch, and Amazon video and music, according to Dave Fildes, director of investor relations. of the society.

“While Amazon’s retail business has softened, it has offset the weakness in services,” GlobalData chief executive Neil Saunders said in comments via email. However, Prime subscription revenue growth slowed from the 13% rise last quarter, which GlobalData said was “a significant deterioration from the average quarterly growth rate of 30.5% over the last quarter.” last three years”.

Wells Fargo analysts have noted that the Prime program could reach a saturation point, at least in regions where it has been available for some time.

Nor was the company’s net loss entirely due to Rivian, according to Saunders, who called the net losses “shady.” Amazon’s retail operating losses included $627 million in North America and $1.8 billion overseas, he said.

“These are masked by AWS’s $5.7 billion operating profit, but they nonetheless show that Amazon is suffering the same fate as players like Walmart and Target – namely that costs outpace growth. sales of a certain margin,” he said.

Still, the company’s year-over-year comparisons in coming quarters are likely to soften as it won’t face the pandemic-related e-commerce surge or last year’s Prime Day. – the latter fell by about 400 points compared to that of this year. Q2 revenue, Olsavsky said. And if, as rumor has it, the company decides to hold a second Prime Day, “Amazon has a chance to release better numbers,” according to Saunders. “Having said that, the economy and consumer sentiment are also deteriorating, so for Amazon to deliver, it will have to go up a descending escalator very quickly.”