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Amazon is committed to non-retail business as e-commerce sales decline for the second straight quarter

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Dive briefs:

  • Amazon’s online retail sales, which include store-based grocery delivery or pickup, fell for the second consecutive quarter, falling 4.3% to $50.9 billion in the second quarter... Brick-and-mortar sales increased 12.5% ​​to $4.7 billion, partly due to higher food prices.

  • The e-commerce giant’s operating expenses rose 11.9% to $117.9 billion, according to a company press release. This resulted in operating profit of $ 3.3 billion, down 56.9% year-on-year. Amazon recorded another net loss ( $ 3.9 billion pre-tax valuation loss from investment in EV companies Rivian Automobile), This time, it has reached $ 2 billion from last year’s net profit of $ 7.8 billion.

  • Amazon made up for the decline in e-commerce primarily through fees from Prime customers and Marketplace sellers. Subscription revenue increased 10% to $8.7 billion, seller services revenue increased 9.1% to $27.4 billion, and advertising revenue increased 17.5% to $8.8 billion.

Dive Insight:

Amazon’s retail e-commerce site increasingly looks less like a retail endeavor and more like a fulcrum on which more lucrative companies sit. Including AWS cloud units and other services, the company’s net revenue increased 7% to $121.2 billion.

That market has grown in importance, as third-party sellers accounted for 57% of all units sold on Amazon in the quarter, the highest percentage ever for Chief Financial Officer Brian. Orsafsky I told analysts on Thursday. The company is also working on ways to monetize advertising, including streaming services like Twitch and Amazon’s video and music, according to Dave Fildes, the company’s director of investor relations.

“Amazon’s retail business softened, but made up for service weaknesses,” said GlobalData managing director Neil Saunders in an email. However, Prime subscription revenue growth slowed from a 13% rise last quarter. This is a “significant deterioration from the 30.5% average quarterly growth rate over the last three years,” according to GlobalData.

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

Saunders, who called the net loss “eye-popping,” said not all of the company’s net loss went to Rivian. Amazon’s retail-related operating losses included $627 million in North America and $1.8 billion overseas, he said.

“These are hidden by $5.7 billion in operating income from AWS, but they still show that Amazon suffers the same fate as players like Walmart and Target: Costs are becoming a factor in sales. It’s well above the growth, “he said.

Still, the company’s year-over-year comparisons are expected to soften in coming quarters as it doesn’t compete with the pandemic-related surge in e-commerce or last year’s Prime Day. The latter has fallen about 400 points since this year’s Prime Day. Second quarter earnings, Orsafsky Said. And, as rumored, if the company decides to hold a second Prime Day,Amazon has an opportunity to come up with better top-line numbers,” Sanders said. “That said, the economy and consumer sentiment are also deteriorating, so Amazon needs to run the downward escalator very quickly to deliver.”