Amazon forecasts slower growth as it laps last year’s insane online sales gains




Stakeholders in most retail companies would be doing a happy dance after posting second quarter results that showed sales up 27 percent. For Amazon.com, however, the results showed a slowdown from more recent quarters as the easing of social restrictions created by the widespread availability of COVID-19 vaccines led many consumers to take part in more in-store shopping experiences vs. ordering online.
Amazon CFO Brian Olsavsky said that the retail and technology giant’s numbers were down from the mid-30 percent range the company experienced last year in the earlier months of the pandemic, but that it represented a gain over 2019’s results. In short, year-over-year comparisons would likely look less flattering for Amazon this year based on 2020’s pandemic-fueled results.
“We do expect this pattern of difficult year-over-year revenue comps to continue for the next few quarters,” Mr. Olsavsky told analysts yesterday on an earnings call. “As we move forward and start to comp COVID ‘s impact on our revenue growth, we encourage you to also look at the multiyear compounded annual growth rate since the onset of the pandemic to better put this growth in perspective.”
Amazon’s CFO pointed to the importance of the company’s Prime members and third-party sellers to its continuing success. He said that membership continues to increase and members are spending more with the company than non-members. He did comment, however, that even Prime members have pulled back some on spending in light of the opening of the economy.
Third-party sellers remain a critical and growing part of the Amazon retail story. Units sold by marketplace sellers represented 56 percent of the total on the Amazon platform in the second quarter, up from 53 percent year-over-year.
One twist to Amazon’s quarter was the inclusion of Prime Day in the numbers. The sales event, which typically took place in July, was pushed to the fall last year due to the pandemic. In 2021, Amazon moved it up to May. Mr. Olsavsky said that the company would have seen its growth rate in the mid-teens if not for the boost it received from the two-day promotion.
“Prime Day was very successful,” said Mr. Olsavsky. “We passed the record set in last fall’s Prime Day, which was a very different time of year to have Prime Day and start to bump up against early holiday shopping, so we’re really pleased.”
- Amazon.com Announces Second Quarter Results – Amazon.com, Inc.
- Amazon.com, Inc. (AMZN) Q2 2021 Results – Earnings Call Transcript – Seeking Alpha
DISCUSSION QUESTIONS: What do you see as the biggest challenges facing Amazon through the rest of 2021 and into 2022? Where do you see opportunities for further substantive growth?
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18 Comments on "Amazon forecasts slower growth as it laps last year’s insane online sales gains"
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Managing Director, GlobalData
Sales growth slowed, but Amazon still added $24 billion to the top line over and above last year’s stellar increases. Net income rose by 48%. These are fantastic results and the disappointment from some quarters is largely a consequence of Wall Street’s inability to understand that online growth isn’t going to keep growing at an accelerated pace. Against this positive set of numbers, it is clear Amazon is dong a lot of things right. The biggest threat is something completely outside of its control: government antitrust investigations and policy shifts.
Principal, Retail Technology Group
Agree! Slower growth but “growth” just the same, is not what I would call a problem.
Chief Strategy Officer, Hoobil8
You’re so right that antitrust regulations are a huge threat to Amazon. Although Amazon’s retail business generates great cash flow, the sales don’t earn enough of a profit margin to be sustainable. If their AWS business is forced to disconnect then the retail side could be in big trouble.
Consulting Partner, TCS
Pandemic infused growth will revert to the mean. But more interesting is, did it match with the overall retail slowdown? If it did not, the takeaway is Amazon lost some ground to Target, Walmart and others.
When Amazon’s results are looked in the context of its direct competition and overall retail, more meaningful conclusions could be drawn.
Chief Amazement Officer, Shepard Presentations, LLC
Last year’s surge was due to the pandemic. Amazon — and many other retailers — realized this was a spike and not permanent. The good news is that people who had learned to use and enjoy the convenience that Amazon and other retailers offered during the pandemic will continue to shop this way, even if not at the same frequency. The result is better sales than pre-pandemic numbers. For now, forecasting the numbers needs to be realistic and not based on mid-pandemic numbers.
Co-founder, RSR Research
EVP Thought Leadership, Marketing, WD Partners
I had a district manager once who told me, “don’t run it up, you have to beat those numbers next year!” Funny. But that’s what happened here. Amazon is like a pop star in that we just can’t wait for them to fail. Of course the numbers were funky! Remember what happened last year? True test for all of retail will be the scores in ’22.
Founding Partner, Merchandising Metrics
Slower growth from Amazon in a world emerging from the pandemic has to be some of the least surprising news ever. They had solid growth and a record Prime Day. Third party sales are up. The migration to ecomm continues. Alibaba is lurking nearby. Walmart is selling its platform tech. When Amazon has difficulty comping on Prime Day or when third party sales slip, we’ll know they are having real challenges.
Senior Vice President, Dechert-Hampe (retired)
Amazon’s biggest problem will be overcoming the misunderstanding of just how strong these results are. How many “pandemic” or “stay at home” companies are comping at 27% versus the second quarter of 2020?
Director, Retail Strategy, CI&T
The fact is that overall, Amazon is still continuing to experience growth. It’s unrealistic to expect that sales would be sustained at the levels they were during the height of the pandemic. However, the fact that third party sellers are such a fundamental part of its continued growth is a red flag considering how many other retailers are ramping up marketplace models. Additionally, more and more retailers are increasing the speed at which shoppers can get product in their hands much faster, further heightening the competition between them and Amazon’s core differentiator.
Director of Planning & Loyalty, Moosylvania
Unfortunately, unless some of these newer surges get under control (I am in Missouri, so I understand we have more new cases than most), I think that Amazon is going to have another holiday season where they dominate sales as people will be at least slightly more hesitant to go out and about. Competitive advantages will continue to be seen through their logistics and AWS as a revenue source.
Principal, Retailing In Focus LLC
It’s no surprise that Amazon sales growth is softening against huge 2020 numbers, so the comparison to 2019 is more valid. Amazon and other online retailers will continue to gain share at a faster rate, especially if the pandemic led to some long-term changes in shopping behavior. I’m not sure we have the answers to those questions yet, but in the meantime Amazon would be smart to accelerate building out its physical-store footprint too.
Chief Strategy Officer, Hoobil8
It’s going to get interesting as Walmart’s marketplace and Alibaba’s 3 day ship to anywhere in the world begin to take hold. Amazon has true competition on the same playing field, perhaps for the first time in their history.
President, Global Collaborations, Inc.
The biggest challenge is that expectations are based upon predictions. For expectations to be accurate predictions need to be accurate. During the pandemic predictions have not been accurate and will not be accurate until we return to some sort of normalcy. As a result, a 27% increase in sales should be viewed as excellent news.
Will the Delta variant continue its dominance and spread? Will another variant become dominant and spread? Will customers stay home again? Will customers want to be out and about shopping? Will customers want to continue using Amazon? Will customers be drawn to other vendors? In light of this uncertainty will investors decide to hold Amazon’s future sales to their prediction or will they be pleased with 27% growth?
Retail Transformation Thought Leader, Advisor, & Strategist
Yes, growth slowed, but let’s be realistic — Amazon had a blowout 2020 thanks to the shopping conditions we all had to endure during the height of the pandemic. Given the big numbers Amazon generates, that’s a tough act to follow, even with Prime Day included in Q2. These numbers still represent a success for Amazon. And with their logistics strength, it’s safe to say they still have growth ahead of them even if they will meet more and more challenges from competitors and perhaps more importantly, from government regulators.
Vice President, Research at IDC
Managing Director, Marketplace AMP
To be expected, as the COVID bounce was an exception. Profit from the retail side and dealing with the huge demand is bringing its own challenges. That said, “Other” unit, which is primarily made up of advertising, but also includes sales related to other service offerings, grew revenue by 87% year-over-year in the second quarter to more than $7.9 billion. Ads are booming, but the retail side is not being invested in. This means everything is automated with vendor managers dealing with 1,000s of brands as Amazon rinses out profit. This means there will be an even larger reliance on in-house talent or agencies to navigate the automated PO systems and algos that are everywhere.
Also, there are lots of alternatives to Amazon with eBay launching its own fulfillment service, Walmart is making great strides and CDiscount Octopia is launching numerous marketplaces too. An interesting market that will only get bigger and more competitive for Amazon. Major growth will slow no doubt because of it.
Founder, CEO
It’s always hard for marketplaces like this to replicate a blowout year, but what we’re seeing in market is that sellers/companies that invest in the areas where they have seen inefficiencies are realizing continued growth. The top line measure is important, but with a marketplace with such a variety of sellers, strategies, products, etc, there’s still plenty of opportunity for Amazon’s third party sales to propel Amazon further ahead.