Amazon swings back to profitability in the third quarter, but warns the holiday period looks less than stellar.

Amazon.com Inc. reported a rise in revenue in the third quarter, but warned of sluggish sales in the holiday season.

Amazon reported total sales of $127.10 billion in Q3, a 15% jump from the $110.81 billion a year earlier. The nation’s largest retailer returned to profitability after two consecutive quarters of losses. Still, the $2.87 billion in net income in the third quarter was a 9.37%  drop from the $3.16 billion of Q3 2021.

Ecommerce sales jumped 13% to $53.39 billion in Q3 2022 year over year. But year-to-date numbers show a 0.3% decline in ecommerce sales.

 

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Amazon’s total sales includes its own product sales, sales from its marketplace, as well as marketplace seller fees, advertising fees and revenue from its software Amazon Web Services.

Amazon is No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales. It is No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.

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Industry watchers were largely impressed with Amazon’s Q3 performance.

“Amazon continues to push past the ecommerce competition despite another rocky quarter for many tech companies. The challenges of this past quarter reflect that while Amazon remains above water, the ecommerce giant must continue to find new ways to stay above their competitors and remain relevant in the online retail space,” said Brent Ramos, director of product, search at Adswerve, which provides data services to marketers, analysts and others. “Although Amazon’s October Prime Early Access sale saw lower numbers than its annual July sale, which was to be expected amid worries of slowing economic growth and a lighter holiday shopping season, it still delivered on its purpose: to boost sales over the two-day shopping event.”

Fourth quarter guidance

Seattle-based Amazon warned that holiday sales will be less than Wall Street analysts had expected. Net sales are expected to be between $140.0 billion and $148.0 billion in the fourth quarter, growing between 2% and 8% compared with fourth quarter 2021. Analysts had forecast Q4 revenue of $156 billion, according to Bloomberg News.

There have been indications that Amazon’s fourth quarter would not be particularly bright.

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The fourth quarter will include results from Amazon’s second Prime Day event of 2022, the so-called Early Access sale. And data from web measurement firm Similarweb suggests that the second event did not perform as well as the July event.

The October Prime Day earned 46% less revenue, Similarweb said, suggesting dampened consumer demand for online shopping, likely due to the struggling economy and close proximity to Amazon’s last sale event.

Similarweb bases its estimates on machine learning algorithms that are fed by millions of websites’ and apps’ first-party analytics (e.g., Google Analytics), both proprietary and sourced through partners. 

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Inflation worries

“With inflation continuing to soar, consumers are looking to save money where they can. Amazon tried to take on the challenges of inflation head on with Prime Day in July and the second one earlier this month. However, it’s evident in the earnings that the ecommerce giant wasn’t able to weather the storm. As prices continue to climb and a looming recession upon us, it’s essential for Amazon to ensure they are building consumer loyalty so when they’re ready to make a purchase, they look to Amazon,” said Gregory Ng, CEO of consulting firm Brooks Bell.

 

Sales at Amazon Web Services (AWS), which offers cloud-hosting services to businesses, jumped 27% to $20.5 billion in the third quarter.

 

Operating expenses jumped nearly 18% to $125 billion in the quarter – the fifth consecutive quarter in which Amazon’s expenses rose faster than revenue growth.

 

While we’re making strides in productivity and network optimization,” chief financial officer Brian Olsavsky said in a call with analysts, “we still have work to do there. So we have to get our cost structure back to pre-pandemic levels in a lot of areas of company in mostly in operations.”

Amazon’s marketplace

Week-to-week marketplace ecommerce order volume on the Amazon marketplace in the third quarter was mostly flat, with a slight increase in the average weekly movement, according to Extensiv, which publishes a weekly analysis of marketplace volume. Extensiv tracks that volume through customers of its platform, which coordinates fulfillment, warehousing and third-party logistics providers for marketplace sellers.

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The Amazon marketplace saw an average weekly gain of 1.4% in the third quarter, Extensiv said. However, the average number of sellers was down 10%.

Competition has been growing for Amazon’s marketplace, particularly from the marketplace owned by Walmart, Inc. (No. 2 on the Top 1000.). But data from Jungle Scout shows that Amazon remains the go-to marketplace in the U.S.

  • 75% of U.S. consumers have purchased from Amazon recently, compared to 43% who have shopped on Walmart.com.
  • 63% of consumers begin their search for a product online on Amazon over Walmart.com (43%).
  • Consumers are more likely to have an Amazon Prime membership (57%) than a Walmart Plus account (31%).
  • Consumers prefer to shop on Amazon over Walmart.com for electronics, books, and clothing. 

Marketplaces seller software vendor Jungle Scout based its findings on data from its Consumer Trends Report, a quarterly, survey of more than 1,000 U.S. adults, and its annual State of the Seller survey of more than 3,500 first- and third-party Amazon and/or Walmart sellers.

For the third quarter, Amazon reported

  • An operating income loss of $412 million from North American operations
  • A 47.8% drop in global operating income to $2.53 billion from $4.85 billion a year earlier
  • $2.87 billion in net income, a 9.37% decline from the $3.16 billion a year earlier

For the nine months ending Sept. 30, 2022:

  • An operating income loss of $2.60 billion from North American operations
  • Global operating income of $5.8 billion, a decline of 61.1% from the comparable period of $24.42 billion
  • A $3.00 billion net loss, a dramatic swing from the $19.04 billion in net income a year earlier.

 

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Percentage changes may not align exactly with dollar figures due to rounding.

Bloomberg News contributed to this report.

 

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