Amazon’s most important businesses are all slowing down

It’s ok, Jeff, you’re still very rich.
It’s ok, Jeff, you’re still very rich.
Image: Reuters/Joshua Roberts
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Amazon isn’t growing like it used to.

Across the board, growth in Amazon’s most important businesses is slowing, according to third-quarter results the company reported Oct. 25. That included year-on-year growth in revenue from products sold on, commissions and services to third-party sellers, subscription products like Amazon Prime, and cloud-computing business Amazon Web Services. It was the slowest quarter of growth reported by each of those segments so far this year.

The company’s stock tumbled as much as 9% in extended trading after Amazon said it brought in $56.6 billion in total revenue in the latest quarter, missing the $57.1 billion analysts expected, according to financial data company FactSet. That represented 29% growth from the third-quarter of 2017, compared to 42.9% growth in the first quarter and 39.3% growth in the second.

Since reaching a $1 trillion valuation at the beginning of September, Amazon has seen its shares shed nearly 20%. At least five different analysts asked Amazon executives on the company’s earnings call about slowed revenue growth. “We’re still very encouraged by the demand and reception from customers,” Amazon chief financial officer Brian Olsavsky said in response to the first question, from a Merrill Lynch analyst wondering about decelerating sales at Amazon’s online stores.

Amazon booked $29 billion in sales from online stores, a category that includes product sales and non-subscription digital media. At about 10%, it’s the slowest growth in the unit since the third quarter of 2017, which is also the start of that comparative data.

In third-party seller services, Amazon recorded $10.4 billion in revenue, up 31% from a year earlier. The segment includes commissions, fulfillment, and shipping fees that Amazon collects from third-party sellers who operate on its website. That was the slowest year-on-year growth in the segment this year, after third-party seller services grew 43.9% in the first quarter, and 38.8% in the second.

Subscription services, which include Amazon Prime and sales of other subscriptions like streaming music and video, contributed $3.7 billion in the third quarter. Year-on-year growth in that segment was 51.5%, compared to 57.4% in the second quarter, and 60% in the first.

Amazon Web Services wasn’t immune to the slowdown. The cloud-computing business brought in $6.68 billion in revenue in the third quarter, up 45.7% from a year ago. The segment grew by roughly 49% in both the first and second quarters of 2018.

The company missed segment estimates on online stores, third-party seller services, Amazon Web Services, and physical stores, which includes sales from Amazon’s 2017 acquisition of Whole Foods. Amazon handily beat expectations for net income, with $2.9 billion compared to the $1.5 billion analysts forecast.

Amazon’s advertising business was a bright spot in the quarter. Its “other” segment, which is primarily advertising, generated $2.5 billion in revenue, more than the $2.39 billion analysts expected. Amazon recently became the third-biggest advertising company in the US, behind only Google and Facebook, thanks to the many Americans who turn to first when searching for a product they wish to buy.