Client Letters: Amazon Earnings
Amazon released Q2 earnings this evening. A couple of takeaways:
Lowest sales growth rate ever but not nearly as severe as expected - Year over year sales growth was 7.2%. Just below the 7.3% reported last quarter which was the company’s lowest ever. We believe the muted expectations leading to the release and lowered guidance from Walmart led to a positive media narrative on Amazon’s results.
Services now 53% of sales - With online stores down 4% in total, AWS continuing to grow >30%, 3rd party seller services +9% and Advertising +18%, Amazon now generates more sales in services than product sales.
International struggles continue - Overall international revenue was down 12% year-over-year with a 3rd consecutive quarter of weak performance.
Inventory saw a steep increase - Similar to other majors, Amazon posted a large year-over-year increase in inventory. We believe that whilst Amazon did slow purchase orders at a faster rate than other retailers, the 1P Vendor Central business is overstocked.
Bottom line: Although overall earnings were better than expected, Amazon is clearly slowing in growth. We have benefited from a bit of relief in Q3 with the shift in Prime Day timing but inventory levels are high. We believe this points to a Q3 filled with markdowns and reduced replenishment purchase orders.
Please reach out with any questions,
Ryan Craver
Disclosure: Client Letters are intended for Commerce Canal clients, investors and employees. Commerce Canal and its officers, directors and employees provide this content for informational purposes only.
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