The news: Amazon had a “record-breaking” holiday quarter, the company said, thanks to solid consumer spending and good momentum in its ad business.
- Revenues rose 14% year-over-year (YoY) to $170.0 billion, outpacing LSEG’s forecast of $166.2 billion.
- North America retail sales grew 13% YoY, with record sales during the retailer’s Black Friday and Cyber Monday sales events. Shoppers bought more items from Amazon this holiday season than any previous holiday period.
- Advertising revenues grew 27% YoY to $14.65 billion, ahead of StreetAccount’s estimate of $14.2 billion.
Return to form: 2023 was a much better year for Amazon, as its cost-cutting push and decision to refocus on its primary growth areas revitalized the company following a sluggish 2022.
- The retailer’s emphasis on improving delivery speeds is one area that is showing significant rewards. The expansion of its same- and next-day delivery radius is enabling Amazon to grow order frequency as well as the items in consumers’ consideration sets, and make its Prime membership even stickier.
- Enhanced convenience could be one reason why Prime membership is growing again: The retailer had 176 million US Prime members at the end of 2023—an increase of around 5% YoY, per Consumer Intelligence Research Partners data cited by Business Insider. That’s a significant improvement from 2022, when membership essentially remained flat.
- Like other retailers, Amazon is exploring ways to use generative AI to improve the customer experience. Its latest effort, an AI-powered shopping assistant named Rufus, is meant to deliver a more personalized, useful search experience that helps shoppers discover products best suited to their needs.
- Amazon’s efforts to make it easier and faster for consumers to shop is enabling it to grow its share of total ecommerce sales, which we expect to tick up slightly to 39.3% this year, as well as maintain its position as the dominant online marketplace in the US.
Advertising opportunities: Prime subscriber growth bodes well for Amazon’s ad business, especially following the rollout of the company’s ad-supported Prime Video tier.
- Amazon could generate anywhere between $1.3 billion to $3.3 billion in revenues from Prime Video ads this year, according to various estimates.
- Important for the retailer’s advertising ambitions, the new offering could entice nonendemic advertisers to invest in the platform, in addition to growing spend from Amazon’s existing seller base.
- We expect Amazon’s ad business to grow 26.6% this year to $44.26 billion.
The big takeaway: On the whole, Amazon’s business is firing on most cylinders. But there are a few storm clouds on the horizon, mostly in the form of government regulators.
- The company recently abandoned its iRobot acquisition after EU regulators raised antitrust concerns. Amazon is also facing an antitrust suit from the FTC over alleged anticompetitive practices that the government agency says resulted in higher prices for consumers.
- And the retailer’s latest regulatory challenge comes from the US Consumer Product Safety Commission, which is looking to force the company to take more responsibility for the goods it sells on its third-party marketplace.