Banyan - September 2023

Amazon Online Sales Bounce 7%, Subscriptions Surge 14%, Customers Still ‘Trade Down’ 

Amazon’s third quarter results showed a rebound in online sales, with a 7% growth rate doubled by the 14% gain in subscription-related revenues.

Earnings materials from the company show that, as detailed on a segment-by-segment basis, online sales were up to $57.3 billion.  

Sales at physical stores grew 6%, to just under $5 billion.

Third-party seller services surged 20% to $34.3 billion.

The subscription services segment grew to $10.2 billion. 

Logistics Buildout

During the conference call with analysts, CEO Andy Jassy said that, with a nod to the buildout of the logistics operations, the “move earlier this year from a single national fulfillment network in the U.S. to eight distinct regions represented one of the most significant changes to our fulfillment network in our history.”

The buildout is one that “has gone more smoothly and made more impact than we optimistically expected.” Higher in-stock levels and optimized connections along the last mile mean that consumers are getting their shipments more quickly.

Everyday Essentials

“A good example is the significant growth we’re seeing in consumables and everyday essentials. When customers are getting items as quickly and conveniently as they are now from Amazon, they’re going to consider us more frequently for more of their shopping needs,” Jassy said.

Amazon Web Services revenue grew 12% year over year in the quarter, to $919 million. 

“Companies have moved more slowly in an uncertain economy in 2023 to complete deals, but we’re seeing the pace and volume of closed deals pick up,” Jassy said. He added that generative artificial intelligence (AI) is allowing companies to create agents to accomplish tasks like answering questions or automating workflows. 

Read more: Amazon Launches AI-Powered Image Generation Tool for Advertisers

And as he added, “We use generative AI models to forecast inventory we need in our various locations and to derive optimal last-mile transportation routes for drivers to employ.”

As for Buy with Prime, he said that consumers and sellers have embraced the new offering, which enables third-party sellers with direct-to-consumer websites to offer Amazon Prime members faster payment and delivery options.

Customers ‘Trading Down’

CFO Brian Olsavsky said on the call, “From a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can, and seeking out deals coupled with lower spending on discretionary items.”

He said that third-party seller momentum stems from growing adoption “of optional services for sellers,” including fulfillment by Amazon and paid account management.

During the question-and-answer session with analysts, Jassy said, in reference to AI, there will be “a significant number of new customer transformations where companies were going to largely move from being on premises to being in the cloud that got stalled in 2023 because companies were being more conservative with their spend and … an uncertain economy.” Those digital transformations will be back on track, he said, and ad spending will see even greater tailwind as eCommerce spending continues.

“We have barely scraped the surface with respect to figuring out how to intelligently integrate advertising into video, into audio and into grocery,” he said. Advertising services-related revenues gained 26% year over year to $12 billion.

Investors pushed the stock about 5% higher in after hours trading.