Between year end reviews of supply chain 2022 and predictions from analysts such as Gartner and IDC, I managed to get to the middle of February with this weekly column.
This week I am going to take a look at Amazon's Q4 2022 results, released earlier this month - and use that to make some observations on the state of ecommerce generally.
Gilmore Says.... |
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| Is it just Amazon? Data from the Commerce Dept. shows that in Q1 2021 and Q 2022, regular retail sales grew faster than ecommerce. |
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Total Amazon sales were $149.2 billion in Q4, up 8.5% versus 2021. That is obviously way down from the 20%+ growth rates regularly turned in fairly recently, and 40+% not long before that (a big bump during the first year of the pandemic being an exception, as Amazon sales for a while soared again.)
The question for years was when Amazon would finally succumb to "the law of large numbers" (one of my favorite economic concepts, which means in this case that companies seeing outsized growth for a stretch, usually in their early years, must inevitably slow down). The question has been answered.
So delivering 8.5% growth when you are a $513.9 billion company (which is what Amazon's full year full year 2022 revenue came in at) is pretty good.
But that doesn't mean Amazon is continuing to take over the ecommerce world. In fact, somewhat buried in its Q4 earnings release is the fact the on-line sales actually fell 2%. More on that in just a little bit). So that 8.5% growth came in spite of a fall in ecommerce, not as a result of it continuing to take share in on-line shopping.
In fact, just 43.5% of that $149.2 billion in total Q4 sales came from ecommerce. Meanwhile, Amazon's AWS web services unit saw 20.3% growth to $21.3 billion, while fees/commissions from Amazon's third-party Marketplace sellers also rose 20% to $36.3 billion.
Advertising revenue was up 19% to $11.5 billion.
So the place where Amazon is gaining share is with its Marketplace service, which also drives fees from advertising, and its Fulfilled by Amazon (FBA) service (which is included in the overall Marketplace number.)
Profits are also back to being hard to find at Amazon. Net income in the quarter was just $278 million, for all intents and purposes in break even when you have $149.2 million in sales - and compares with a strong $14.3 billion in 2021.
In its many years of low or negative profits, Amazon usually pointed to its cash flow numbers as being the better measure than net income. That was true again in Q4, with cash flow of $19 billion, versus just $6.3 in Q1 2021.
Other numbers of interest in Amazon's Q4 result:
Operating income decreased to $2.7 billion in the fourth quarter, compared with $3.5 billion in fourth quarter 2021.
The North America segment actually had an operating loss of $0.2 billion, the same as 2021.
Fulfillment costs, primarily the cost of building and operating its fulfillment and sortation centers plus some inbound logistics costs - but not shipping - rose 3% to $23.1 billion. That is far below the usual growth rates, which could be explained by declining on-line sales and/or a great slowdown in additions to FC capacity.
Similarly, shipping costs rose just 4% - far below recent years - to $24.7 billion. So it adds up to $47.8 billion in costs when combining fulfillment and shipping, on $64.5 billion in on-line sales. I will note some of that shipping cost is recouped by Amazon Prime membership fees and whatever percent of customers actually pay something for shipping.
So switching gears, in 2020 I wrote a column titled "eCommerce Eats the World," which reflected on the transformative impact on society, business and supply chains, from what I assumed would remain high growth rates for ecommerce.
But post-pandemic, the picture is changing. Amazon has seen very low or negative growth in on-line sales in 5 of the last 6 quarters, the exception being Q3 2022 (up 13%).
Is it just Amazon? Data from the Commerce Dept. shows that in Q1 2021 and Q 2022, regular retail sales grew faster than ecommerce, reducing the percent of ecommerce in in total retail sales.
There was something of a turnaround in Q2 and Q3 last year, with ecommerce outpacing overall retail - but not by much.
I believe ecommerce will continue to outpace brick and mortar retail - but not by much.
So eCommerce will continue to eat the world - but one bite at a time from here on out.
What is your reaction to these Amazon results? What numbers would you add? Let us know your thought at the Feedback section below.
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