Amazon Revenue Slows but Seller Fees and Ads Don’t—Q2 2024 Earnings
Amazon released its Q2 2024 earnings on Thursday and overall disappointed investors as it missed estimates fairly significantly. While online store revenue grew just 5%, third-party seller fees and advertising revenue continued to skyrocket.
Overall Highlights
Overall, revenue from online stores was up just 4.6% from $52.966 billion in Q2 2023 to $55.392 billion in Q2 2024 (significantly missing, analysts estimate). As per finance chief Brian Olsavsky, “We did come in a little short on revenue growth in North America versus our internal estimates.”
However, despite the sluggish retail sales, third-party seller services revenue (which includes referral and FBA fees) was up 12.0%. Advertising revenue was up 19.5%.
| Source | Q2 2022 Revenue | Q2 2023 Revenue | Q2 2024 Revenue |
|---|---|---|---|
| Online Stores (ecommerce) | $50.855B | $52.966B | $55.392 (Up 4.6%) |
| Third-party seller services (FBA Fees) | $27.376B | $32.332B | $36.201 (Up 12.0%) |
| Advertising Services | $8.757B | $10.683B | $12.771B (up 19.5%) |
Advertising revenue can incorporate advertising from third-party sellers but can also include advertising on services like Prime Video. Although it is safe to say the vast majority of that advertising revenue is from third-party sellers.
Consumers Looking for More Deals and Cheaper Products
Amazon's finance chief Brian Olsavsky blamed the slower than expected revenue growth on consumers seeking out lower priced items and bigger deals. Olsavsky said “What we’re seeing is really around Average Selling Price (ASP) and lower ASP in products selected by customers. They are continuing to be cautious in their spending and trading down to lower ASP products.”
Conclusion
Slower revenue online sales growth on Amazon coupled with increasing selling fees and advertising fees is a bit of a double whammy for sellers who already faced tight margins. What will the latter half of the year, especially Q4, hold for Amazon and overall ecommerce growth? We'll know in a few months.
The fact that advertising revenue for Amazon (and thus ad costs for sellers) continues to increase is mind-boggling. At some point they will have to pick – Amazon will either have to maximize margins and give up being the low price leader, or they will have to cut fees. I have almost never seen them do the latter so I suspect that can’t happen. Sellers can only go so low until they are losing money.
At some point if you are giving up 15% margin to Amazon in commissions plus another 15-20% in ad costs that is 30-35% in total non-fulfillment margin. As Bezos famously said, “you’re margin is my opportunity”. My guess is that Amazon will show strong margins for another couple of years but over time some other marketplaces will rise up on the strength of lower pricing b/c they will take smaller margins and have lesser ad costs.
Yup, totally agree- eventually prices will react on the platform and they’ll lose their cost edge to other retailers.