AWS, Advertising Expected to Fuel Amazon Growth in Q3 As Online Sales Slow

Amazon.com Inc. is expected to post strong third quarter growth in its advertising and cloud computing segments, which should help offset slowing e-commerce sales as more shoppers return to stores Retail.

The shift in consumer behavior led to a failure in Amazon’s second quarter results, and while Wall Street predicts year-over-year revenue growth in the third quarter, difficult comparisons and uncertainties are associated with it. in e-commerce have put more pressure on other segments of the business to outperform. .

The future of the cloud

The cloud computing unit of Amazon Amazon Web Services Inc., or AWS, reported second quarter revenue of $ 14.81 billion, up 37% from the previous year.

A pandemic acceleration in cloud computing adoption across industries has helped fuel steady double-digit growth for AWS over the past year, and the trend is expected to continue for some time.

A 451 Research Voice of the Enterprise survey conducted in the first quarter found that about a third of the organizations represented used public cloud services as their top workload destinations in 2021, up from 26% in 2020. Respondents to the survey indicated that by 2023, approximately 57% of the organizations represented should rely on public cloud environments. The survey included responses from 450 end-user IT decision makers representing small, medium and large enterprises in the public and private sectors.

Scott Kessler, global industry manager for technology, media and telecommunications at Third Bridge, said AWS has the ability to capitalize on customer needs for a range of services, including management tools and business applications, which can be customized for specific businesses.

“Historically, people viewed AWS as computing and storage,” Kessler said. “It has become so much more than that.”

AWS ranks third among Amazon’s reporting segments in terms of net sales, after the company’s online store sales and third-party vendor services. These two categories reported net sales of $ 53.16 billion and $ 25.09 billion, respectively, in the second quarter.

Advertising bursts

Amazon’s advertising business has grown explosively over the past year and a half as more consumers search for products on its ecommerce platform and businesses increasingly look to towards digital advertising.

Amazon’s “other” sales category, which is primarily made up of advertising services, grew 87.5% year-over-year in the second quarter to $ 7.91 billion. That puts the segment on par with revenue generated from Amazon’s subscription services, which saw sales of $ 7.92 billion, up about 32% year-over-year.

Amazon’s advertising business could get another boost once the company closes $ 8.45 billion the acquisition of film and television company MGM Holdings Inc., which will endow the company with rights to a range of cinematic content, noted Tom Forte, Managing Director of DA Davidson.

Amazon’s advertising services include online ads, video ads that appear on smart TVs, and audio ads on Alexa-enabled devices.

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Headwinds of e-commerce

The growth of the company’s core e-commerce has slowed significantly in recent months as consumers spend more offline as online store sales have increased. 15.8% year-on-year in the second quarter, compared to 44.3% growth in the first quarter. A key question is to what extent some shoppers continued to return to physical retail stores this summer as rates of COVID-19 cases fluctuated. Slowing ecommerce sales negatively impacted Amazon’s second-quarter revenue by $ 113.08 billion, which was missing Wall Street expectations.

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“We have surpassed the levels of supercharged online sales that we have already seen since the pandemic,” T saiduna Amobi, entertainment analyst with CFRA. That said, retail sales rose in September, providing reassurance that consumers are still spending at healthy levels, the analyst noted.

Wall Street expects Amazon’s third-quarter revenue to rise 16% to $ 111.66 billion, at the top of Amazon’s expected range, according to consensus estimates from S&P Capital IQ as of October 25.

“It is difficult to determine the performance of e-commerce sales in the September quarter for Amazon given the big, unpleasant surprise of the second quarter,” Forte said.


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David A. Albanese