Amazon Q2 2023 Earnings Beat - Commerce Accelerated Newsletter

I spoke with Ed Ludlow on Bloomberg TV last week breaking down Amazon's earnings as the company reined in spending & saw it's strongest earnings beat since Q4 2020.

In this newsletter, we'll cover:

1. Key takeaways from the Quarter
2. Challenges Amazon is facing
3. Looking forward - what can we expect
4. Curated POV from other thought leaders in the space

What Drove Results

Delivery Speeds and Cost Optimization

Amazon's commitment to faster delivery speeds and cost optimization measures paid off. The company recorded its "fastest delivery speeds ever" and implemented regionalized fulfillment strategies (moving from nationalized to regional) that reduced costs & got products to customers faster. 

This is good news for brands: faster promise on a PDP = higher customer conversion.

Advertising Growth 

Advertising had a monster quarter, its revenue grew by 22% to $10.6B, with a steady 22-23% YoY growth over the last few quarters. In contrast, Meta's core digital ad business has been shrinking - although also reported a rebound this quarter growing 11% YoY to $32B:

Amazon Marketing Cloud & Stream have been successful in unlocking more budgets. It seems like the more AMC data we show clients, the more data requests and measurement conversations we have.

Jassy called out the ramp for Thursday Night Football with the ability for advertisers to tailor their spots by audience & create interactive experiences for consumers. As the price for this comes down a bit, it will be interesting to see this play out (no pun intended). Certainly it's a great opportunity for Amazon to capture branding dollars, but a challenge is alcohol brands are unable to participate (which are typically big advertisers for football ads).

Check out Pacvue's Q2 Advertising Benchmark Report to see the latest trends in Amazon's performance advertising spends, costs, & returns.

AWS Growth

AWS growth "stabilized," indicating a shift from cost optimization to new workload deployment. Although the growth was 12%, it exceeded analysts' expectations. However, this is still the lowest increase when compared to Google and Microsoft (both +26-28% on smaller bases).  AWS has been a cost-cutting tactic for companies and a major driver of Amazon's profitability.

Retail Business

Brands & Sellers saw stabilization in brand inventory and budgets, returning to better positions. This enabled more brands to participate in Prime Day this year than last year (according to a survey by Kiri Masters , 80% of her clients opted in vs 69% in 2022 and 64% in 2021). However, inflation-conscious consumer behavior has driven a change in categories bought - there's a bigger focus on needs vs wants with household essentials & home goods prevailing categories bought. As we look towards Prime Day 2 in Oct, brands should be thinking about these new consumer shifts: trading down, needs vs wants, buying on discount, and importantly - converting those discount hungry shoppers into actual ongoing customers.

Martin Heubel brings up a good point of view - Amazon's return to pre-pandemic profitability levels will change the world of 1P vendors - impending trade negotiations will become even more challenging than before.

Seller Sentiment

Some interesting seller sentiment and insights I captured for the quarter:

• Profitability efficiencies: Ocean Shipping rates are down, strong dollar
• Trying to keep turn rate tight due to interest rates
• Marketplace seems to be reaching saturation in terms of number of relevant products appearing for high volume keywords -- > will be difficult to continue to introduce new products on existing keywords
• Positive sentiment that IPI storage helps with Q4 inventory management (LY OOS with Amazon trying to keep inventory lean)

Challenges

• Grocery: have not figured out the right in store format yet. Experimenting in 2 markets right now & won't scale until they see results
• Tik Tok, Shein, Teemu coming in strong. With costs rising on Amazon (FBA, Advertising, etc) sellers see the increased need to diversify. Tik Tok is said to be launching on online retail store in the US later this month - with all the "Tik Tok made me buy it" driving to Amazon - lots of opportunity to keep that w/in the Tik Tok App.
• Consumers trading down due to macroeconomic uncertainties

Looking Forward

Amazon is redesigning its search capabilities to include generative AI - new job listings indicate Amazon will reimagine Search with interactive conversational experiences that would allow shoppers to compare products, receive personalized suggestions, & get answers. Amazon will need to ensure advertising monetization with new functionality. How this could play out: when you search "Mother's Day Gifts" for example, today you get a listing that is not very personalized. Your "Ask Amazon" assistant might ask some clarifying questions like - do you want to buy your mom chocolate? What does your mom like? You also can get better personalized recommendations based on Amazon's knowledge of your past purchase behavior combined with your responses to its questions - knowing if you typically buy higher ASP or lower ASP items would enable a more personalized, curated result. Hopeful end result - more sales!

Curated POV

Check out these quick reads for earnings break down from thought leaders you can follow:

Rick Watson: AWS Passes Cost Optimization Inflection Point and Accelerates Into Growth

Jeff Cohen: Record Breaking Revenue break down

🎧 Podcast of The Week  

Jason & Scot Show Episode 308 Amazon Q2 2023 earnings recap - Jason & Scot always have the best breakdown of earnings results & shows!

Amazon's Q2 earnings report paints a picture of a company that is innovating and growing yet facing some challenges. The success of Prime Day and the focus on customer needs over wants sets Amazon up for continued success. The insights from this quarter provide valuable lessons for both investors and other businesses looking to understand the dynamics of the current retail and technology landscape. 

About the author: Melissa Burdick, a seasoned omnichannel growth expert and retail industry thought leader, is the co-founder and president of Pacvue, a commerce acceleration company. Burdick helps brands and sellers start, run and scale their business across shopping destinations including Amazon, Walmart and Instacart, and more. Prior to Pacvue, Burdick spent 10 years at Amazon, where she led development of the Amazon Ads business and played a key role in launching the e-commerce giant’s CPG/Health & Beauty retail business.