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Amazon: A Slower Pace Down the Road Ahead

Thomas Paulson
Oct 28, 2022
Amazon: A Slower Pace Down the Road Ahead

  • Amazon’s 3Q22 update and outlook reflected several of the trends described in Google’s and Meta’s business (including foreign exchanges headwinds, a lower outlook for AWS/cloud revenue, a significant pullback in consumer spending in Europe, and a deceleration in the U.S.). These factors each contributed to Amazon's 4Q22 outlook calling for only +2%-8% revenue growth in 4Q22.
  • As it relates to their U.S. retail business, Amazon's Prime event in July was strong (representing $2.2B in sales and over 150M items purchased in the U.S.), but trends decelerated from there. This deceleration can be seen in the fulfillment center (FC) activity that Placer.ai measures in the table below. Trucks departing Amazon's FCs were up 11.6% YoY in July but slowed to flat for September (a 12 ppt deceleration). Our data suggests that shifts worked by FC staff also decelerated 11 ppts. We estimate that units sold in the U.S. grew by the mid-teens, with the delta between unit growth and high-single-digit truck deployments and low-single-digit FC shifts worked explained by productivity. For the first time since pre-pandemic, Amazon produced leverage on both fulfillment and shipping expenses in North America.

  • As it relates to 4Q22 and the holiday season in the U.S., Amazon CFO Brian Olsavsky appeared to be relatively constructive on the U.S. consumer and didn’t cite any material pullback, just caution. Amazon intends to be aggressive this season to win more than their fair share of holiday spend by being fully in-stock, extra sharp on price, and extra fast in delivery. Olsavsky stated, “consumers are looking for deals,” and “we now offer the widest selection ever.” Implicit in management’s revenue outlook for 4Q22 is mid- to high-single revenue growth for the e-commerce business, with faster growth by third-party sellers.
  • Third-party seller revenue and units are growing faster than first-party sellers, as these SMB sellers are leaning into the Amazon marketplace to clear inventory and generate revenue. Amazon is where they can do that, compared to Google and Facebook. For the privilege of selling on Amazon, Amazon is charging sellers more for advertising to its consumers (a similar theme as last quarter); unlike all other digital advertising companies (Meta, Google, Snap, etc.), Amazon’s advertising business accelerated in 3Q22 to +30% growth from +21% last quarter.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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