Third-party seller services and overall marketplace growth helped fuel Amazon’s third-quarter earnings.
This past quarter, Amazon’s online stores business grew 7% year-over-year to $57.2 billion. These numbers outperform the 0% and 4% growth rates in the online retail division in the first and second quarters of 2023, respectively. And Amazon’s third-party sellers services revenue — which includes seller fees, fulfillment and shipping fees among other services — grew 20% year-over-year to $34.4 billion in the third-quarter. This was faster than the 18% growth rate reported in first and second quarters of this year. And growth in Amazon’s cloud computing business stabilized with AWS reporting 12% year-on-year growth for two quarters in a row. AWS reported revenue of $23 billion in the most recent quarter. Additionally, Amazon’s advertising revenue jumped 12% year-over-year to $12 billion.
Overall, the Seattle tech giant reported a 13% year-over-year increase in revenue to $143.1 billion from $127.1 billion for the same period last year. Amazon’s net profit more than tripled to $9.9 billion from $2.9 billion in the three months ended September 30.
Put together, Amazon is getting back to historical growth rates following the pandemic. The company took a positive reading of its latest numbers. “We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” wrote Andy Jassy, CEO Amazon in a company blogpost.
The company is benefitting from efforts it has made to improve its free and fast shipping. Amazon has spent the last four years investing money and resources in overhauling its warehouse and delivery network in order to reduce shipping times from two days to one day or less. Amazon said that its shift away from a national fulfillment model to one in which the country is divided into eight smaller regions, with local facilities has paid off. Amazon has cut down on delivery times for online purchases from 3.7 days in December 2019 to 1.5 days in June 2023, according to latest data from Insider Intelligence. Amazon also said on the first day of its recently concluded Prime Big Deals Day it delivered thousands of items within four hours of purchase.
Scott Devitt, managing director for equity research at Wedbush Securities said that the narrative here shows improving retail conditions for Amazon. “We’re getting back to traditional trends, improving margin in retail, stronger growth in advertising and stabilization in AWS,” he said.
Devitt added that fast and free shipping is a big driver of the economics of Amazon’s retail business, because it reduces friction and reduces customer wallet share. “And then within retail, there’s also just a natural ongoing mix shift from first-party inventory, which Amazon owns, to third-party services,” he added.
As Modern Retail has previously reported, more brands that once relied on Amazon’s 1P model have found that the company’s terms are no longer working in their favor, and are considering the switch to 3P. Ultimately, this shift works in Amazon’s favor in its quest for profitability.
However, Devitt said, Amazon could be negatively impacted from a possible weakening consumer demand, because of interest rate increases and the uncertainty around corporate spending habits in the last three months of the year. “Those are the two areas that are more macro driven, that are certainly things that they [Amazon] don’t really have control over, but could be factors in the business in the last three months of the year,” he said.