Amazon turning into a Day 2 company?

The retail growth phenomenon that has been Amazon is showing signs of slowing growth. Amazon’s entire corporate story has been built around entrepreneurial mindset and fast growth. The company has grown rapidly to expand into evermore categories.

This has been epitomised by the famous Day 1 mindset that was set out by the founder Jeff Bezos. The Covid pandemic seemed to accelerate this development into ever faster pace.

As the pandemic has faded, the growth has also plateaued significantly. The big question for the future is whether Amazon has only entered a new level of operation from which it continues to grow.

Slowing growth

Throughout it’s history the company has enjoyed 20+% Year over Year (YoY) growth (only seldomly a bit less than 20%).

For the last three quarters the growth has dropped below 10%. One has to note that the comparison numbers from the previous year are unprecedentedly high Covid numbers of 40+% YoY growth.

Despite the slowing growth, Amazon has kept on growing. During the last two years, Amazon has grown almost 100%. This is despite the fact that Q2/2020 was the first Covid quarter during which revenues grew by +40%.

Amazon’s trailing 12 month revenue is +64% higher than the trailing 12 month revenue just before the pandemic (Q2/2019-Q1/2020).

Declining retail sales

Growth of Amazon’s service segments

Amazon’s growth currently comes from services. The traditional retailing part of the business has seen revenues plateau during 2021 and decline in 2022.

Over the last 10 years, Amazon’s product sales growth has dipped below 10% only for four quarters (40 quarters in total between 2012-2021). In that context the declining product sales are an important development.

As the product sales have not been growing, service sales have become majority of revenue for the retail segment at Amazon. Currently services bring in 53,4% of retail revenue. That is up by 10%-points since Q2/2020 (43,4%).

AWS enabling profitability

Amazon operating income by segment

For profitability the different business segments of Amazon are performing rather differently. Where the retailing segments (North America and International) have seen low or declining revenue growth, AWS has remained on a high growth level of 30+%.

AWS is also really important for Amazon in terms of producing operating income. For the last three quarters even the North American business has not been able to generate operating income.