IAN's take: Amazon's 2Q23 earnings review

Time: 2023-08-15 10:18

In August, many companies, including Amazon, reported results for the second quarter.
Taken as a whole, Amazon's overall Q2 2023 financial performance was stellar!
There is a lot of valuable information that can be gained from analyzing financial reports, but what useful intelligence does Amazon's financial report contain?
Let IAN explain them all.

Amazon's second-quarter earnings data
Recently, Amazon reported its financial results for Q2 2023, which ended at the end of June.
In the second quarter, Amazon's sales reached $134.4 billion, which not only exceeded analysts' expectations of $131.63 billion, but also increased 11% from the same period last year, showing that Amazon's business is growing strongly.
Amazon's net income of $6.75 billion, meanwhile, was its highest since the fourth quarter of 2012, reversing from a net loss of $2 billion a year earlier.
Amazon's stock price jumped more than 7% after the earnings report, reflecting investors' recognition and confidence in the company's performance and growth prospects.
The earnings release highlighted Amazon's strong core competitiveness, indicating that it will continue to maintain a leading position and steady growth in e-commerce and cloud computing.
Amazon's Q2 sales revenue grew by double digits year on year
International sales: $29.7 billion (+10% YoY)
North America sales: $82.5 billion (+11% YoY)
Cloud services sales: $22.1 billion (+12% YoY)
Prime Member subscriptions: $9.9 billion (+14% YoY)
Third-party seller service fees: $32.3 billion (+18% YoY)
AD revenue ~ : $10.7 billion (+22% YoY)

Why did Amazon's revenue rise so much?
Since 2022, Amazon has been caught in the crossfire between Temu and Shein.
Competition is fierce, but the cross-border Titan still exudes a dash of arrogance.
The competition doesn't seem to have hurt Amazon much, according to actual earnings numbers.
But in the face of Temu and Shein's onslaught, Amazon made four changes in time.

Upgrading and progress in logistics distribution
In recent years, Amazon has continued to invest heavily in revamping its warehouse logistics and dramatically speeding up delivery.
Amazon's latest quarterly report shows that delivery rates have hit a record high.
Over the past four years, Amazon has reduced standard delivery times from two days to one or faster by revamping its warehouse network and delivery system.
So far, more than 300 million items have been eligible for Prime free shipping.
In 60 major U.S. cities, more than half of Prime orders are delivered the same or next day.
In the first half of 2023, Amazon delivered 18bn items, four times as many as in the same period in 2019.
The optimization of distribution network first benefits the same-day and next-day delivery of groceries (including but not limited to daily consumables, fresh goods, etc.).
To sum up, logistics upgrading is an important measure taken by Amazon to maintain its leading position on the platform in recent years, which reflects its forward-looking investment and execution.

Advertising has grown by leaps and means
In the second quarter, Amazon's third-party seller fees and advertising revenue grew particularly fast.
Amazon's online AD business, fueled by sellers, has become a lucrative one, accounting for about 7.3% of the global digital AD market and poised to break even Google and Meta's dominance in the U.S. online AD market.
But at the same time, increased competition and higher advertising costs have undoubtedly been passed on to sellers, increasing their cost pressures.
This forces cross-border sellers to increase and deepen their investment in advertising and research, so as to maintain an edge in the competition.

Large-scale layoffs + higher service fees, cost reduction and efficiency achieved
Since 2022, Amazon has taken several steps to control costs and increase revenue in the face of inflationary pressures and an economic slowdown.
In its second-quarter earnings report, Amazon disclosed that the total number of employees had fallen to about 1.52 million.
During that time, Amazon laid off 27,000 workers, the biggest layoffs in the company's history.
Layoffs can directly reduce manpower expenses, which is the most direct means to cut costs.
The sectors affected include cloud computing (AWS), advertising, live streaming, video gaming, human resources, and more.
In addition to the job cuts, Amazon has raised Prime membership fees and FBA logistics rates to boost revenue.
In the last two quarters, these measures have helped Amazon control internal costs, improve margins, and make its operations more efficient and resilient.

The upgrade of artificial intelligence
Amazon CEO Andy Jassy revealed:
Artificial intelligence is a core strategy for Amazon.
Amazon has invested heavily in AI, including in cloud computing, retail, personalized advertising, entertainment, and more.
The use of AI not only saves costs, but also helps upgrade Amazon's platforms, especially its Alexa assistant.
Alexa intelligent voice assistant can build a smart home system by controlling home devices and querying information.

Looking ahead, we are bullish on Amazon's growth prospects in Q3.
For the third quarter, the company expects revenue of $138 billion to $143 billion, up 9 percent to 13 percent from a year earlier.
Operating profit is expected to be between $5.5 billion and $8.5 billion, compared with $2.5 billion a year ago.
After that, Amazon will continue its previous plan to further reduce expenses, reduce costs and improve efficiency, which is a good guide for the company's growth in the later stage.

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