Amazon Q2 Earnings: What Sellers Need To Know

Amazon has released its Q2 earnings report, giving us a preview of what’s to come for sellers in a post-pandemic world.

Amazon’s Growth Is Slowing Down

Amazon’s net sales grew 27% to $113.1 billion for Q2 2021.

It’s massive growth when compared to the $88.9 billion it posted in the same quarter of last year, but it misses the $115.2 billion projected by analysts and it’s not exactly attractive considering that it held Prime Day in this quarter compared to when it normally occurs in July (Q3).

This is a sign that the ecommerce giant is slowing down in terms of revenue growth (It grew 44% in the previous quarter). This is likely largely because of lockdowns easing, vaccines being rolled out, and dollars somewhat returning to brick and mortar.

The table above shows that Amazon’s growth has somewhat normalized back to the pre-pandemic setting (Q1 of 2020). Its Q2 retail sales growth is also only roughly half the figures from the previous quarter and the corresponding quarter of the previous year. International retails sales show a similar trend of lower growth, and mostly for the same reasons.

Amazon recognizes as much, with new CEO Andy Jassy stating that its consumer business catered to considerable demand to cope with the difficult circumstances of the pandemic. As a matter of fact, Amazon is expecting to slow down even more, projecting only a 16% increase in revenue in Q3, whereas it predicted 24-30% for Q2.

Net income increased by 48% to $7.8 billion, which, again, is a solid number, but is quite a significant slow-down from the $8.1 billion (220% percent increase from Q1 2020) posted last year.

Lower Growth Could Be Good News and Bad News for Sellers

This is an indication of potentially lower demand due to lower online retail activity, and possibly lower sales for sellers in a post-pandemic world.

However, while sellers may suffer from lower sales, there could be a silver lining. Lower growth means Amazon warehouses may clear up some capacity and storage and ASIN limits could potentially be reduced (our words, not Amazon’s).

During an earnings call, Amazon said “[Our space limitations] were more pronounced in Q2 [2020] and into early May [2020] as we were working to get fully staffed and working to build out more capacity. In Q4 we were working with volume that was unheard of. Our Q4 growth was 42% year over year. Our throttling of space to third party sellers is not something we like to do and this is why we're building out our fulfillment network as fast as we can and we have a lot of capacity being added in the second half of this year.”

Lower growth and more capacity could ease restocking limitations for sellers – or we hope.

Third Party Retail Sales Grew from 53% to 56%

During the earnings call, Amazon reported that retail sales from third party sales grew by 300 basis points (3%) to account for 56% of all retail sales.

Prime Day In June 2021 Was The Biggest Yet

Amazon held Prime Day in June this year, instead of its usual mid-July schedule, largely to sell to customers before they went on long vacations in July. It seemed to have worked out, though, since Prime Day 2021 was bigger than all previous iterations.

According to the report, customers bought more than 250 million items during the June Prime Day and spent $1.9 billion on products from third-party sellers during the Spend $10, Get $10 promotion─more than double compared to the same quarter last year.

What this means for sellers, particularly small and medium businesses, is that the lead-up to Prime as well as the event itself is still worth looking into to ramp up sales. Prime members are still the most active shoppers on Amazon, after all.

Also take note that this shift in the Prime Day schedule means some categories perform better than others. Assuming that Amazon will stick to the June schedule next year, expect the “back-to-school category” to be the biggest winner again. That includes sellers who offer laptops and laptop accessories, headphones, backpacks, notebooks, and calculators.

This time around, Amazon did not mention a specific number as to Prime membership (They mentioned over 200 million members in the previous quarter), but it remains a key driver for the online retail side of things. Prime is now available in Portugal, expanding its coverage to a total of 22 countries.

That said, some analysts point out some symptoms of slowing demand, particularly its 22% sales increase in North America compared with the 43% increase it raked in during the same period last year.

Amazon’s Ad Revenue Continues To Soar

Coming to advertising on Amazon, its Q2 report told us what we already know: Rising ad costs are the biggest threat to your business.

Amazon’s “Other” category, which is largely from sales of advertising services, grew by a whopping 87% to $7.91 billion, compared with the same quarter last year. To think that the 77% percent growth from the previous quarter was already quite alarming.

The table above shows the clear upward trend for advertising costs. Sellers can expect this trend to continue into Q3 2021, especially since Amazon Advertising is now available in marketplaces like Australia, Europe, and India.

What this all means is that you should prepare to spend way more if you want to use Amazon’s advertising methods. Be sure to check out our PPC guide to learn how to keep your ad costs healthy and what the best advertising methods are.

More on advertising, the Q2 report also highlighted some new features to Amazon Advertising, including:

• Regional sponsored product campaign creation tools,
• AWS Partner Network, and
• A simplified creative asset management solution

Amazon also announced that Amazon Streaming TV ads and Twitch now jointly reach an audience of 120 million monthly viewers across the U.S., expanding advertising channels for brands─could Amazon at some point roll out direct advertising to these platforms for sellers?

Amazon “Stopped” 6 Million Bad Actors from Registering for Seller Central Accounts

One of the more interesting nuggets from the earnings release was that “Amazon’s verification processes prevented over 6 million attempts [in 2020] to create selling accounts before bad actors listed a single product for sale”. Amazon doesn’t define what exactly a bad actor is. We must also remember that late 2020 was also a time when Amazon was suspending sellers on a wide scale basis when it deemed a seller was related to another seller central account that was suspended (and often suspending sellers erroneously) so it also makes one wonder if these account suspensions are included in that 6 million total. Amazon also did not mention that it’s identity verification checks are a constant source of friction for new sellers who erroneously get flagged and prevented from registering.

Counterfeiters and IP infringers continue to be among the biggest challenges for Amazon sellers over the past year (We have a podcast episode discussing how you can protect your brand from copycats).

The Q2 report highlighted Amazon’s first Brand Protection Report, which is essentially a rundown of its anti-counterfeiting efforts and its effort to count the frequent negative reporting it gets of counterfeits existing on the platform.

Last year, Amazon claimed to have put in $700 million and employed 10,000 people to protect customers and sellers from copycats.

Amazon Continues to Double Down on Social Media

Amazon launched its “Internet Famous” storefront in Q2. This features a curated selection of brands and products (much like Amazon Launchpad) showcasing the top trending products on social media.

Social media marketing picked up in the past several months, including the recent rollout of Instagram DM automation. The new storefront seems to incentivize sellers to invest in social media and influencer marketing, perhaps hinting to Amazon’s future plans to integrate creator platforms like Amazon Live further into its marketplace.

$150 Million Earmarked for Black and Women Third Party Sellers

Amazon has earmarked $150 million over four years for Black Business Accelerator, which is dedicated to helping African American entrepreneurs succeed as third-party ecommerce sellers on the platform. Some of the financial assistance the program is offering includes a $500 credit to assist with start up costs, $400 in Sponsored Products advertising Credits, and free product imaging.

What’s In Store For Q3 2021

Between people going out and about thanks to vaccines and the ongoing crackdown from regulators, Amazon’s revenue growth is expected to slow down even more in Q3.

According to its financial guidance for Q3, Amazon predicts a 10-16% net sales growth compared with Q3 last year─an expectedly less optimistic estimate compared to its 24-30% growth prediction for Q2.

Make no mistake, these are still significant numbers for a “trillion-dollar company”, but Amazon’s ride on the pandemic tailwind may come to an end sooner or later.

Conclusion

If you want the whole enchilada, say, Amazon’s growth for AWS and its Entertainment departments, the complete Q2 report is posted on their website.

Future quarterly reports will reveal how much of Amazon’s strengthened online retail business will sustain post-pandemic, but Bezos’s brainchild, now under Jassy’s management, will definitely see much slower growth on the retail front than it did during the pandemic year.