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Dive Brief:

  • Amazon’s online retail sales, which include store-based grocery delivery or pickup, dropped for the second straight quarter, falling 4.3% in Q2 to $50.9 billion. Partly due 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 income down 56.9% year over year to $3.3 billion. Amazon notched another net loss, (including a pre-tax valuation loss of $3.9 billion from its investment in EV company Rivian Automotive), this time reaching $2 billion from last year’s net income of $7.8 billion.
  • Amazon made up for its e-commerce decline mainly through fees from Prime customers and marketplace sellers: Subscription sales rose 10% to $8.7 billion, seller services revenue rose 9.1% to $27.4 billion and advertising sales rose 17.5% to $8.8 billion.

Dive Insight:

Amazon’s retail e-commerce site increasingly seems less like a retail endeavor and more like the fulcrum upon which more lucrative enterprises rest. Including its AWS cloud unit and other services, the company’s net sales rose 7% to $121.2 billion.

Its marketplace is gaining in importance, as third-party sellers accounted for 57% of all units sold on Amazon in the quarter, the highest percentage ever, Chief Financial Officer Brian Olsavsky told analysts Thursday. The company is also working on more ways to make money from advertising, including via its streaming services including Twitch, and Amazon video and music, according to Dave Fildes, the company’s director of investor relations.

“While Amazon’s retail business has softened, it has made up for the weakness with services,” GlobalData Managing Director Neil Saunders said in emailed comments. However, Prime subscription revenue growth slowed from last quarter’s 13% rise, which according to GlobalData was “a significant deterioration from the average quarterly growth rate of 30.5% over the last three years.”

Wells Fargo analysts noted that the Prime program may be reaching a saturation point, at least in areas where it’s been available for a while.

The company’s net loss isn’t all down to Rivian, either, according to Saunders, who called the net losses “eyewatering.” Amazon’s retail-related operating losses included $627 million in North America and $1.8 billion abroad, he said.

“These are masked by the $5.7 billion operating income from AWS, but they nevertheless show that Amazon is suffering from the same fate as players like Walmart and Target — namely that costs are outpacing sales growth by quite some margin,” he said.

Still, the company’s year-over-year comparisons in coming quarters are set to ease up, since they won’t be up against the pandemic-related e-commerce surge or last year’s Prime Day — the latter dinged about 400 points from this year’s Q2 revenue, Olsavsky said. And if, as rumored, the company decides to stage a second Prime Day, “Amazon has a chance to put out some better top line numbers,” according to Saunders. “That said, the economy and consumer sentiment is also deteriorating so, for Amazon to deliver, it will need to run very fast up a downward escalator.”