The chart below is what Amazon’s net sales look like in raw numbers over the past several years, broken down into the major business segments reported by the Seattle-based company.
Here are the same results, expressed as a percentage of net sales.
That big blue line on the top represents Amazon’s core e-commerce business, Online Stores, and as the second chart shows, this segment has been declining as a percentage of the company’s overall business for the past several years.
In fact, for the first time in Amazon’s history, online store sales represented less than 40% of its overall net sales in its second-quarter results, according to GeekWire’s calculations from the company’s historical financial numbers.
The declining percentage comes from noticeably slower growth in the online segment over the past couple years (including year-over year declines in some recent quarters) and the continued growth of the company’s revenue from areas including third party seller services, Amazon Web Services, and advertising services.
This is not to suggest that Amazon is becoming less of an online retail juggernaut. Net sales from the Online Stores segment rose 4% in the second quarter to nearly $53 billion.
However, its business is transforming over time as its sources of revenue become more diverse, which theoretically could shield the company from the ups and downs of individual business segments in the long run.
Here’s how the company defines each segment in its 10Q filing.
Online sales: “Includes product sales and digital media content where we record revenue gross. We leverage our retail infrastructure to offer a wide selection of consumable and durable goods that includes media products available in both a physical and digital format, such as books, videos, games, music, and software. These product sales include digital products sold on a transactional basis. Digital media content subscriptions that provide unlimited viewing or usage rights are included in ‘Subscription services.’ ” [Rose 4% to $53 billion in the second quarter.]
Physical stores: “Includes product sales where our customers physically select items in a store. Sales to customers who order goods online for delivery or pickup at our physical stores are included in ‘Online stores.’ ” [Rose 6.4% to $5 billion.]
Third-party seller services: “Includes commissions and any related fulfillment and shipping fees, and other third-party seller services.” [Rose 18% to $32.3 billion.]
Subscription services: “Includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services.” [Rose 13.5% to $9.9 billion.]
Advertising services: “Includes sales of advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and video advertising.” [Rose 22% to $10.7 billion.]
Other: “Includes sales related to various other offerings, such as certain licensing and distribution of video content, health care services, and shipping services, and our co-branded credit card agreements.” [This segment, not included in the chart above, rose 26% to $1.3 billion.]
Amazon Web Services posted revenue of $22.1 billion, up 12% for the quarter, continuing a trend of slowing growth in the company’s cloud division.
Amazon CEO Andy Jassy, the former AWS CEO, defended the business on the company’s earnings call with Wall Street analysts, asserting that double-digit growth in a business with an $88 billion annual revenue run rate is an achievement in the current economic environment.
“There’s a lot of growth in front of us in AWS,” he said.
AWS operating profit declined 6% to $5.4 billion in the quarter.
Artificial intelligence: Jassy spent a sizeable portion of his prepared remarks describing the company’s work in generative artificial intelligence, and its potential as driver of growth.
Amazon is competing against Microsoft, Google, and others in this area, and it has been going out of its way to make the case that it’s poised to be a leader in the new era of generative AI.
“Inside Amazon, every one of our teams is working on building generative AI applications that reinvent and enhance their customers’ experience,” Jassy said on the call. “But while we will build a number of these applications ourselves, most will be built by other companies. And we’re optimistic that the largest number of these will be built on AWS.”
RBC analyst Brad Erickson offered this take in a note to clients.
For whatever reason, today’s conference call struck us as an almost coming out party for AMZN to lay out both its view of the GAI landscape as well as offering a bit more about why it believes it is well positioned. Consistent with our views, management laid out an open-source strategy leveraging more efficient model training and broader and more customizable access to a variety of model partners and application developers which it believes will become a foundation piece of its competitive moat.
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