Amazon's big quarter

Investors were relieved. [View in browser]( [Bloomberg]( Hi, it’s Spencer Soper in Seattle. Amazon has proven it’s immune from discount-mania. But first... Today’s must-reads: • IPhone demand helped Apple [narrowly top estimates]( last quarter • Advertisers [are struggling]( with Instagram’s TikTok clone • Intel’s CEO told investors, “We must and [will do better](.” What recession? Amazon.com Inc. on Thursday reminded investors it’s not like other retailers. The company’s big-box competitors—like Walmart Inc., Target Corp. and Best Buy Co.—[cut profit forecasts]( this earnings season, citing costly stockpiles of merchandise such as clothes and electronics that consumers no longer want as the economy wavers. Amazon, meanwhile, reported second-quarter revenue that beat estimates and predicted sales could [rise 17%]( in the current quarter. Amazon has a profitable [cloud-computing business]( that can help shelter it from trouble in its retail divisions, but that’s only half the story. The company’s growing emphasis on third-party selling, a very different business model than the big-box stores’, has helped lift the tech giant while competitors are forced to offer big discounts. While Amazon does sell some items directly, the company is predominantly an online marketplace like EBay Inc., meaning it collects commissions and fees when shoppers purchase things on the site without having to actually buy that inventory. In the three months ended June 30, 57% of all things sold on Amazon came from independent merchants who bear all the inventory risk—the highest that number has ever been. In downturns, that model is especially valuable. When companies like Walmart, Target and Best Buy have to unload excess inventory, they’re forced to make steep discounts, which reduces profits. But when a merchant selling goods on Amazon cuts prices, Amazon still gets paid—even if that means the company takes a smaller commission on the sales, and even if the merchant loses money. Amazon’s revenue from third-party seller services—a category that includes commissions and fees for things like warehousing, packaging and delivery—increased 9% in the second quarter to $27.38 billion. That bright spot outshone a 4% decline in its online retail sales, which are more similar to the model of its big-box competitors. “Amazon is in better shape from an inventory perspective and doesn’t have to unload a bunch of stuff at a loss,” said Brian Yarbrough, analyst at Edward Jones & Co. The marketplace model also helps Amazon shift more quickly to things people want to buy. Its hundreds of thousands of merchants scour search engine trends in real time to know which products they should be selling and when. Unlike store shelves that have to be physically rearranged, the online marketplace’s search engine surfaces what you want when you want it from a deep inventory of hundreds of millions of products. Meanwhile a big-box store can only carry approximately 100,000 different goods. On a call with analysts, Amazon Chief Financial Officer Brian Olsavsky said the company didn’t see any reduction in demand from consumers or advertisers who pay to make their products more visible on the site. Another positive note was that subscription services revenue, which is mostly Prime memberships, grew 14% in the quarter, reversing three consecutive quarters of slowing growth—meaning shoppers still see value in the membership, despite a $20 price hike in February to $139 a year. In the hours after the company reported earnings, its stock shot up by [more than 13%]( in late trading. Part of the bounce, said Tom Forte, an analyst at DA Davidson & Co., was that other retailers had fared so poorly that Amazon’s relatively buoyant report triggered a “relief rally.” It’s a reminder that the country’s largest retail company is still a lot more tech than retail. —[Spencer Soper](mailto:ssoper@bloomberg.net) The big story The buy now, pay later juggernaut is about to be tested. Economic uncertainty, competition, regulators, and the usual consumer debt problems are [spoiling the fun](. What else you need to know Roku’s stock slumped 25% in late trading after the company said [advertisers are pulling back]( due to economic concerns. Global smartphone shipments fell to their lowest quarterly number in two years after [consumer confidence was sapped]( by inflation and recession fears. A Nintendo assembler withdrew its outlook, citing [chips uncertainty](. Xiaomi is facing difficulties getting regulatory approval for its [$10 billion electric vehicle project]( in China. 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