Amazon saw third-quarter earnings beat Street estimates, but its revenue and fourth-quarter outlook fell short of expectations, causing the stock to plunge 10% in extended trading.
The results show how Amazon could have a disappointing holiday season in its all-important fourth quarter, as the overall business sees a slight deceleration in growth. At the same time, it highlights the growth of Amazon’s high-margin businesses, like its cloud and advertising units, that are more profitable than its core retail segment.
Total revenue increased 29% from last year. North American sales were USD$34.3bn (£26.6bn), up 35% from last year, while international sales grew just 13% to USD$15.5bn (£12bn). AWS continued to show strong growth, jumping 46% in sales, although it narrowly missed expectations. Amazon’s ‘other’ category, mostly comprised of its burgeoning advertising business, jumped 123% to USD$2.5bn (£2bn) in revenue.
RetailTechNews spoke to industry leaders to get their view on the earnings:
Christina Stahlkopf, senior research consultant, C Space, notes that despite the results, Amazon is still a unique business: “Amazon may have seen a deceleration in recent growth that disappointed the City, but for consumers it’s a different story. The e-commerce giant has thrown itself into industry after industry, expanding its tentacular reach with such gusto that even the rumour of a move from Amazon can shake share prices and shape markets – a notable example is in healthcare with its acquisition of PillPack. Nearly 90% of consumers who rated Amazon for C Space’s 2018 report Customer, Experienced say that they would like to buy additional products and services from Amazon that they don’t currently purchase, implying endless possibility for growth. What is most interesting to consider is how Amazon might weave together disparate industries into more cohesive offerings to address the Internet of things (IoT) in a way no other brand can. Imagine an Amazon health and wellness platform where consumers could, for example, order a bicycle and a fitness tracker that linked their data to an Amazon profile and connected with other devices like the fridge to help better manage daily nutritional intake in relation to fitness levels and reorder food when required? Outside of Amazon, there is no other single company that can accomplish this alone.”
Alasdair Henderson, UK general manager, Optimizely, says the company’s ongoing success is down to its willingness to take risks: “Amazon has come a long way from its early origins as an online bookstore. The company has evolved over the years as a result of its commitment to a test-and-earn approach. This same approach has enabled the company to successfully launch products such as Alexa and broaden its business offering, which has been reflected in its earnings report for the third quarter.
“The fact that its revenue estimates for the fourth quarter have fallen short is no reason to move away from the practices that have generated such rapid growth in recent years. Amazon is able to truly understand what customers really want, by using experimentation to underpin every decision that it makes. However, it’s important to remember that not every experiment becomes a new product. Not every Amazon initiative has been deemed a success: just look at ‘Block View’ – Amazon’s equivalent to Google’s ‘Street View’ – which was ultimately dropped from Amazon’s search engine. The company’s success has been a result of continuous learning and iterating. This is a recipe for success that isn’t likely to change in the coming quarters, as Amazon continues to innovate and provide customers with experiences they want and need.”
Voice will be the factor driving Amazon’s future growth, according to David Coombs, head of strategic services, Cheil UK: “Amazon’s shares took a tumble last week as its sales forecast proved markedly lower than expected. Yet Amazon retains its remarkable Midas touch, as its investments in innovative technology and new sectors over the years continues to pay off. Amazon is being rewarded for not standing still; the former online bookshop is now a master of cloud services, loyalty programmes, content and – very excitingly – voice assistants. Voice is an area in which many companies are now jostling to be front-runner – Samsung’s ‘Bixby’, Google’s ‘Home’, and Apple’s ‘Siri’ all offer different capabilities – but Amazon has first-mover advantage, with Alexa taking 70% of the smart-speaker market. It’s going to be a fascinating tussle between the tech giants to see who ultimately owns voice – and it is creating a dilemma for customer-facing businesses that need to consider creating skills for voice assistants and ensure they’re keeping up with this latest disruption in marketing. But, ultimately, the consumer will decide which system to embrace, based on which offers the best utility and the simplest, friction-free experience.”
Amazon’s ad business prospering
Aaron Goldman, CMO, 4C Insights, says that Amazon can further build their advertising platform off the trust of their other products: “Amazon, which ramped up its efforts to help marketers reach audiences in Q3, is becoming a bigger player in digital advertising; and we expect this to drive revenue growth moving forward. Consumers hold long-established confidence in the e-commerce and video platform – and developments like the announcement of API integrations for Amazon Advertising with companies like 4C – are now drawing more brands to the service, especially retail and CPG companies looking to scale and optimise Amazon investments or connect their e-commerce presence with a broader range of cross-channel advertising activities. It’s already become the new number three for digital ad revenue; and as advertising becomes a bigger focus, we expect it to drive future financial performance.”
Wesley MacLaggan, SVP marketing, Marin Software, focuses on what these results mean for the search market: “Whilst Google continues to grow its search revenues, the real story is the growing influence of Amazon. Globally, it reported USD$2.2bn (£1.7bn) in ad revenues in Q2, a drop in the ocean compared to Google, but far greater than others – like Snap – competing for ad spend. This is nudging up overall spend on search, as evidenced by the IAB results, as well as nibbling into Google’s share of the pie.
“It’s easy to see why advertisers are flocking to Amazon – its Prime service is now used by a third of all UK shoppers. That’s a huge audience and it’s worth paying for prominence by serving sponsored product listings, which appear at the top of users’ product search results on Amazon.
“Of course, another ad platform to manage means extra time and cost investment from marketers. Marketers who can master the efficient use of Amazon – and understand the interplay with Google and Facebook – will thrive.”
Thor Johnson, CEO, inRiver, feels the latest findings represent Amazon’s market-leading position: “These latest results from Amazon certainly attest to their dominance, not only in product search, but now also as the third largest digital advertiser. We have seen Amazon is now the first stop for almost half (45%) of online shoppers in the UK, which not only provides huge opportunities for e-commerce giant itself, but also for those selling via the marketplace.”
Finally, Angus Burrell, General Manager UK, Valitor, says that: “Amazon has risen to success, and continues to prosper, because it has made the customer journey seamless – they make shopping easy, something that today, although expected, isn’t always delivered by retailers. They successfully manage customers through segmentation and automation and carefully target and personalise particular messages to drive basket conversion. Once you want to buy something, Amazon provides an easy journey from search to fulfilment, especially for their Amazon Prime customers. Payment happens at just the click of a button and delivery is simply taken care of.
“Maintaining this success will be a challenge as Amazon seeks to dominate our high street. With their recent issues around deploying new technology in-store, Amazon has to remember that, in general, consumers are unforgiving. Each customer will have a unique view of different types of technology, and they need to be happy with the experience they get. Consumers are king and any retailer has to remember this.”