Amazon reaching $500 billion for the first time, as retail sales slow down
Amazon reached the $500 billion mark in revenues as the second retailer in history. For Amazon it took only 27 years to reach the mark. However, despite Amazon being the world’s second biggest retail company, it’s retail sales have slowed down during the last Christmas season. For the last six quarters Amazon has seen record low growth numbers for product sales.
In fact, the product sales dropped during three quarters in 2022.
This drop in product sales has led the company to both lose market share in the US online retail market, the market it has helped to build and dominate. Since the first half of 2021 (and the pandemic restrictions), Amazon has grown slower than the overall US online retail market (Non-Store Retailing as measured by the Census Bureau).
The other result of the slow down in product sales is that in 2022 Amazon has officially become a service organisation. Last year 52,7% of Amazon’s revenue came from service. The product sales share of revenue dropped from 51,5% in 2021 to 47,3% last year.
The growth of services was lead by 3rd party services, the biggest service segment in the company, and Advertising services. The growth in 3rd party services is notable as they are already $117 billion business in themselves. The Advertising business has been growing rapidly lately and reached $37,7 billion in revenues in 2022. The growth in Ads has masked the true unprofitability of the retail business for quite some time.
The real profit engine for Amazon has for quite some time been the AWS cloud business. It has also seen the growth and margins decline lately. However, with its $80 billion in revenue and $22,8 billion in Operating margins, AWS is still highly profitable and funding the other parts of the Amazon empire. However, some have started to question whether AWS is the biggest profit engine for Amazon?
With $37,7 billion in highly profitable revenues, the Ads business could soon rival AWS as the biggest money maker in the company.
Of the other business segments, International remained a growth and profitability drag for Amazon in Q4 also. The North American segment continues as a robust growth engine with revenues topping $315 billion and growth still continuing at double digit rate: 13,4%. Truly strong business.
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