More Of The Same: Strong Q2, Driven by Advertising & Cloud
Amazon delivered impressive second-quarter results, with net sales surging 10% year-over-year to $148 billion. The company’s net income experienced a remarkable upswing, showcasing improved operational efficiency and cost management.
Key Highlights
Revenue Growth: Amazon's net sales climbed 10% to $148 billion, defying economic challenges and demonstrating continued market dominance.
Profit Surge: The company reported a net income of $7.8 billion, a significant increase compared to the previous year, reflecting improved operational efficiency and cost management.
AWS Expansion: Amazon Web Services (AWS) maintained its growth trajectory, solidifying its position as the leading cloud computing platform, with revenue increasing by 12% year-over-year.
Advertising Boom: Amazon's advertising business continued its rapid expansion, generating substantial revenue and positioning the company as a major player in digital advertising thanks to newer offerings with brand building media. Advertising revenue jumped 20% to $12.77 billion.
Prime Day Success: The annual Prime Day shopping event exceeded expectations, setting new sales records and driving customer engagement. Specific sales figures haven't been disclosed
International Growth: Amazon's international segment performed well in Q2 2024, with operating income improving by $1.2 billion year-over-year to $300 million. This was driven by cost reductions in established markets and expanded offerings in emerging ones. This meant the segment returned to profitability after several quarters of losses.
Rx Pass: Whilst the report was light on new product announcements outside of AI initiatives, they did reveal that Amazon Pharmacy has expanded to include 60 popular prescription medications for just $5 a month with fast free delivery.
Trading down
Whilst the results were strong they did miss analysts expectations. Brian Olsavsky, CFO of Amazon.com, said the revenue miss was driven by consumers choosing to buy cheaper products, leading to lower average selling price (ASP). “What we’re seeing is really around ASP and lower ASP in products selected by customers,” Olsavsky said. “They are continuing to be cautious in their spending and trading down to lower ASP products.”
In response to this trend, at an event with Chinese sellers in June, Amazon said it plans to launch a discount store that will feature mostly unbranded items priced below $20. The store is expected to offer apparel, home goods and other products.
Subdued expectations for Q3
Amazon expressed cautious optimism for the third quarter, anticipating continued growth driven by the holiday shopping season and the upcoming Prime Day event. The company expects to generate between $147 billion and $153 billion in net sales during Q3, representing year-over-year growth of 9% to 13%. Olsavsky said the company is attributing part of the weakness in its guidance to consumers being distracted by world events, which he said made it “a tough quarter to forecast.” He highlighted the Olympics, which began last month in Paris, and the attempted assassination of Donald Trump at a rally in July.
In summary, it was more of the same from Amazon, AWS and Advertising are the key tenets of profit and growth. They made more investments in AI and further increased their media and entertainment credentials. They will be delighted that the international segment has returned to profitability. There was some good insight on current trading conditions and the impact of global events on Q3 expectations. As before, they remain resilient, cost focused with cautious investment.
