The tech industry reported earnings this week, and things look quite grim. However, there was one notable exception- Amazon. The e-commerce giant's second-quarter revenue was more than US$ 121 billion. It was a 7% increase that cleared the $119 billion mark estimated by analysts. The company didn't report a profit as earnings per share were at a loss of 20 cents. Soon after the revenue was reported, the stock of Amazon performed well. Here, we analyze how Amazon broke tech's Q2 bad news streak and increased its revenue.
The Key
Factors
Many key
factors helped Amazon perform well. Though the company's online sales dropped,
the brick-and-mortar sales increased to US$ 4.72 billion, which is a 12 percent
jump year-over-year.
The
Trend
It seems that
the decrease in online sales is the new trend. In an Ipsos survey by Publicis
Sapient and Salesforce, 37 percent of retail decision makers revealed that
their e-commerce business isn't meeting profitability goals. A quarter of the
respondents also admitted it didn't make a profit. About 27 percent even blamed
their e-com side for hurting their overall profitability.
46 percent
of the businesses involved in brick-and-mortar and web sales admitted that online
sales were less profitable than physical retail.
Amazon's physical
retail efforts in grocery, fashion, and other categories are still fledgling
operations. The e-commerce giant reported that the merchant community had posted
a strong performance during the quarter.
Third-party
vendor services are a US$ 27 billion business. They saw an increase of 9% in
sales. In an earnings call, Chief Financial Officer Brian Olsavsky claimed that
"third-party sellers represent 57 percent of all units sold on Amazon.
[the second quarter] – Highest percentage ever."
He also
mentioned that Amazon had added jobs at the slowest rate since 2019 and now
employs over 1.52 million part and full-time workers. The brand's total
workforce was about 100,000 less than the previous quarter, and capital expenses
on warehouses and transportation were reducing.
Olsavsky also
highlighted AWS.
He said, "We know AWS is a huge opportunity," and governments and
companies are still early on the demand curve. AWS and its online advertising
business managed to beat previous expectations and pulled in US$ 19.7 billion
and US$ 8.76 billion, respectively.
The latter
is quite impressive in a quarter when online ad sales undercut platforms like
Twitter, Snapchat and Meta falter and caused a wave of disappointing
second-quarter results
Chief
Executive Officer Andy Jassy talked about cost control and enhancing productivity.
Jassy said, "Despite continued inflationary pressures in fuel, energy, and
transportation costs, we're making progress on the more controllable costs we
referenced last quarter, particularly improving the productivity of our
fulfillment network."
The Rising
Subscription Costs
Amazon also
chose to increase the price of Prime membership in February in the US. It also
chose similar hikes in Europe a few days back. As a result of these changes,
the subscription revenue had increased 14 percent to reach US$ 8.72 billion.
Sources:
https://wwd.com/business-news/technology/amazons-q2-2022-tech-retail-1235265891/?.tsrc=rss
https://biz.crast.net/how-amazon-broke-techs-q2-bad-news-streak/
https://www.bnnbloomberg.ca/amazon-jumps-on-strong-sales-that-ease-fears-of-slowdown-1.1798541