Amazon reported an impressive $200.6 billion in total revenue, up 20% from Q2 last year. The good news is Amazon did report an increase in actual product revenue and an increase in 3P fees both 15 and 15.9% respectively. But that doesn’t necessarily translate to more branded product unit shipments. Let’s break down their data
1P Product Revenue
Amazon reported a 15% lift in worldwide online store growth which is predominantly made up of their 1P side of the business but that doesn’t necessarily translate to higher unit volume.
Inflation added 3-4% to COGs to Amazon this year, but we saw Amazon increasing prices at a higher rate than the COGs increase across most categories, except for groceries. Several brands reported a 3-11% gap between 1P COGs and Revenue growth rates during Q2.
Interesting note; Amazon’s reported cost of goods sold (which does include things other than raw product cost) fell 17% vs Q2 last year.
3P Fee Increases
Fees from 3rd party sellers increased 15.9% which does confirm growth. Amazon did not change its core fees it added a 3.5% FBA fuel surcharge in April and retooled its inbound FBA fee structure, both dramatically increasing FBA costs for sellers.
What’s interesting is that even though the 3P revenue increased faster than 1P the % of shipments via 3P remained flat at 61% showing no real change in the mix.
Prime Day Shift
Although Prime Day was somewhat muted vs last year it did provide a boost to the week between Father’s Day and 4th of July; a historically soft week. That likely added a 10-15% lift to June (which is great but isn’t helping July)
Bottom Line Q2 Unit Estimate
Take all of these into account we estimate North American unit growth on the 1P, and 3P side were similar both in the 7-9% range. That’s an improvement of Q1s 4% 1P and 7% 3P. Grocery and B2B were the strongest categories with Amazon’s aggressively pushing grocery to compete with Walmart.
However, their priority isn’t ecommerce
Understand Amazon’s Real Growth Engine
AWS (their cloud computing division) surged by 36.7% to $42.2 billion. It is unquestionably the driver of its growth and profits. Amazon is now pouring hundreds of billions of dollars into data centers, fast networks, and special computer chips for AI.
In fact, they’re spending so much their free cash flow turned negative this quarter and have announced plans to spend $220b more.
Amazon’s main online store is no longer its top priority. Instead, the shopping site is now used mainly as a steady way to bring in cash to fund the company’s giant push into cloud computing and AI.
They still hold 25-40% of the ecommerce market and aren’t going anywhere, but a brands strategy needs to factor in:
- Realistic Amazon Growth Rate – B2B, Grocery, and some specialties categories are still showing double digit customer growth
- Competitive Position – While there was a temporary decrease in direct import brands last year, the stronger ones have survived and are attaching the lower price points.
- Aggressive Marketing Spend Management – AMS is a major driver of Amazon revenue and is crucial for success, but the latest updates and revisions require an updated strategy and flawless execution
- Major Content Platform Shifts – The new title changes were just the first round of updates. If your content isn’t AI and mobile friendly the next rounds of search, navigation, and Amazon app may leave your brand behind the 8 ball.
- 3rd Party Management – For larger brands the ecosystem of 3rd party sellers was both blessing and a curse, but they did provide a critical supply chain link via FBA and FBM. Now many of those classic resellers are leaving; they just can’t make money
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