Amazon’s Q3 2022 Results: Top 5 Questions, Answered
#1 HOW WAS AMAZON’S GROWTH IN Q3?
Amazon’s total net sales grew 15% in Q3, representing a reacceleration from the past several quarters in the mid- to high-single digit range. Running Prime Day in Q3 this year (July) rather than 2Q last year (June) helped year-over-year growth comparisons, contributing ~400 bps of growth.
The North American retail business outperformed the International retail business which saw a 5% decrease in sales. Across business types, strongest growth was seen in AWS (28% Y/Y growth), Advertising (25%), and 3P Seller Services (18%), with relatively lower growth (albeit still positive) in Online Stores, Physical Stores, and Subscription Services.
Source: Amazon financials
#2 HOW WAS PRIME DAY(S) PERFORMANCE?
Mid-July marked Amazon’s eighth annual Prime Day. More than 300 million items were sold worldwide, making it the biggest Prime Day net sales event in Amazon's history and contributing ~400 bps to Q3 growth. The recent Prime Early Access sales event—which will fall into Q4 results—sold more than 100 million items from 3P sellers (total units not disclosed), with management reporting it helped consumers kick off holiday shopping and find good deals in an otherwise inflationary environment.
Amazon’s July Prime Day press release
Amazon’s October Prime Early Access Sale press release
#3 WHAT’S THE OUTLOOK FOR THE HOLIDAYS?
In short, cautious. Amazon guided Q4 sales growth in the 2%-8% range, which would represent the lowest growth rate in the past several years. Note, guidance includes an unfavorable FX impact of ~460 bps. Management noted consumer spending pullback based on broad-scale inflation, heightened fuel prices and rising energy costs, resulting in moderating sales growth as the third quarter progressed, which the company expects to persist in Q4.
#4 IS AMAZON FEELING PROFIT PRESSURES?
Yes! Total operating income declined by nearly 50% vs. Q3 2021 with margins dropping to 2.0%, the lowest margin rate in the past several years.
The challenging macroenvironment is weighing on Amazon’s profitably (raw material and transportation inflation, inconsistent and less efficient labor, etc). Amazon is also over-inventoried in some areas of the business, resulting in a drag on profitability and cash flow.
While Prime Day is a welcomed sales boost, it comes with lower profitability as items are sold on discount, particularly Amazon device sales which are typically sold at a loss (with Amazon making their profit on the customers’ use of the device).
Digital content and related marketing costs (Lord of the Rings, NFL Thursday Night Football) weighed on profitability this quarter.
Heading into Q4, management noted the company is “tightening its belt” given its own cost pressures and uncertainty on how the macroeconomic environment will continue to impact consumer spending, and therefore sales growth.
Source: Amazon financials
#5 WHAT’S AMAZON’S SUPPLY CHAIN STATUS?
Management noted having a lot of inventory (in some cases, too much inventory) and therefore feeling well-positioned for holiday. For brands and sellers, however, this is resulting in low restock limits (3P sellers) and purchase orders (1P vendors), making it difficult to bring in new inventory ahead of the key holiday time frame.
After doubling its fulfillment center capacity in 2020-2021, Amazon plans to reduce its fulfillment and transportation capital investments by ~$10 billion for the full year 2022 compared to 2021.
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More detail from Amazon:
about CLAIRE MCBRIDEClaire leads Research, Insights and Education for Netrush. Her entire career has been centered in the consumer and retail space, spending the last five years helping brands grow and optimize their ecommerce businesses through written research, events, share group discussions and one-on-one consulting. Prior to joining Netrush, she led the ecommerce market research division at Cleveland Research Company. Connect with Claire.
