Amazon’s retailing grows as well as AWS

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As usual, Amazon’s growth over the past quarter has been driven by the AWS web-services businesses, yet its retail operations continue to be profitable.

For the whole Group, its latest results for the first quarter of 2024 saw net sales increase by 13% to US$143.3bn, operating income trebled year-on-year to $4.8bn whilst net income trebled to $10.4bn.

Certainly, the ‘Amazon Web Services’ business continues to grow strongly, with operating income almost doubling from $5.1bn in Q1 2023 to $9.4bn in Q1 2024. This growth is ascribed to the expanding demand for server capacity from AI-driven systems.

However, the results also show that retail operations are also growing consistently. For the ‘North American’ retail business, sales increased by 12% whilst ‘International’ retail rose by 10%. North American retailing is sustaining its profits, with Q1 seeing operational profits hit $4.98bn, in contrast to the $898m seen in Q1 2023. This was less true for the ‘International’ operation, which has seen consistent losses up until this quarter, however in Q1 2024 ‘International’ saw an operational profit of $903m, a major turnaround from the $1.2bn loss it saw in the first quarter of 2023.  The sales numbers are large, yet the operating profit margin of North American retailing is 5.8%, which is reasonable for either a retailing or logistics business. In contrast, AWS is 37.6%.

It should also be noted that it is not Amazon’s own retail operations that are driving its retail operations. Rather it is the “Third-party Seller Services” that are growing at 16% year-on-year, more than twice the rate of both on-line and physical stores.

Certainly, Amazon is continuing to invest in logistics infrastructure, although the focus of that expansion appears to have shifted outside the US. Logistics costs seem to be falling as a proportion of sales, implying that productivity continues to improve and this must be likely to underpin the prospects of the ‘International’ business. However, a cloud has arisen on the Amazon horizon. The Chinese e-retailers have shown a surprising dynamism, even making an impact in the US market. Despite the sustained profitability of most of Amazon’s retailing operations and the strength of AWS, Amazon cannot afford to get complacent.

Author: Thomas Cullen

Source: Ti Insight

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