/Amazon’s Sales Growth Slows, Even as Cloud Business Stays Hot

Amazon’s Sales Growth Slows, Even as Cloud Business Stays Hot

SEATTLE — Amazon held off stiffer competitors for internet buyers through the vacation season, as soon as once more growing its gross sales. But the corporate mentioned on Thursday that development slowed from its typical breakneck tempo — and it got here at a price, with the corporate spending much more on transport to win prospects.

While robust, the most recent quarterly outcomes recommended that Amazon’s retail enterprise not solely faces extra competitors, it is usually maturing. The firm reported that its income from retail gross sales and companies grew 17 % to virtually $65 billion globally, whereas its transport prices rose 23 %, to $9 billion, in contrast with the identical quarter a yr in the past.

The firm is compensating for slowing development in e-commerce by increasing its fast-moving, extremely worthwhile cloud and promoting companies. Over all, the corporate produced a revenue of $three billion within the quarter, up greater than 60 % from the identical interval a yr earlier.

Competition for customers over the vacations was intense and costly, as different massive retailers stepped up their promotions. Target supplied free two-day transport, irrespective of how small an order, and Walmart and others tried to maximise use of their bodily shops, a bonus they’ve over Amazon. On Christmas Eve, Best Buy prospects might order merchandise on-line from retailer stock as late as 5 p.m. and decide them up simply an hour later.

Amazon pushed again with expanded free transport to all prospects till a few week earlier than Christmas, and made extra merchandise eligible without cost one-day transport for Prime members.

But income from on-line procuring slowed, partially as a result of now most of Amazon’s retail gross sales come from third-party retailers promoting on its market fairly than from Amazon’s personal stock. Amazon will get solely a slice of this income.

In addition, the expansion of Prime membership, which prices $119 a yr, is approaching a plateau. About 56 % of American households can be Prime members this yr, up solely barely from 53 % in 2018, Morgan Stanley estimated. Prime members spend much more on the location, making them essential to growing gross sales.

Another danger awaits the corporate: India. The nation, which Amazon has made its most necessary rising market, imposed new laws that prohibit overseas e-commerce firms from proudly owning a stake in sellers that provide objects on their websites. That has restricted the choice obtainable on Amazon by almost a third virtually overnight. Brian Olsavsky, Amazon’s finance chief, cited “uncertainty” in India as a reason Amazon predicted lower revenue for the next quarter than analysts had expected.

Even as sales growth has slowed, though, Amazon has increased profit margins.

The third-party merchant business, for example, is generally more profitable than when Amazon sells products it buys directly because the costs are lower.

It has also tried to squeeze costs from its operations. Mr. Olsavsky pointed to how the number of employees grew 38 percent in 2017, excluding acquisitions, but just 14 percent in 2018. There were similar trends in the construction of data centers and warehouses. “We had a banking, if you will, of some large expansions in the prior two years,” Mr. Olsavsky said on a call with analysts.

“The theme has been Amazon shifting from a product seller to a fee collector,” said Simeon Siegel, an analyst at Instinet. The shift from growth to profit is common as companies mature, he said: “We are going through growing pains.”

Shares in the company fell nearly 5 percent in after-hours trading, after the quarterly results were released.

Amazon’s two great profit engines are not in the core business of selling and fulfilling items, however — they are in cloud computing and advertising.

Amazon Web Services, the leading provider of cloud computing, grew 45 percent, with $7.4 billion in sales and almost $2.2 billion in operating income.

After several years of dominating the market, which it essentially helped create, Amazon now faces robust competition, including from Microsoft. At its annual cloud conference in November, Amazon announced a number of new products, including AWS Outposts, which lets companies use a single set of tools to manage data across cloud and local servers, an area known as “hybrid cloud” where Microsoft has had success.

Mr. Olsavsky said the company had been hiring aggressively to bring in more engineers and sales staff for the cloud offerings, saying “AWS maintained a very strong growth rate and continued to deliver for customers.”

Source link Nytimes.com

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